What Is a DSCR Loan?
A DSCR loan is a mortgage for investment properties that qualifies you based on the property's rental income - not your personal income. DSCR stands for Debt Service Coverage Ratio. It measures whether a property earns enough rent to cover its mortgage payment.
With a conventional mortgage, lenders look at your W-2s, tax returns, and debt-to-income ratio. With a DSCR loan, the lender only cares about one thing: does the rent cover the payment?
This makes DSCR loans the go-to option for real estate investors who own multiple properties, are self-employed, or write off enough on taxes to make their income look low on paper.
Why this matters: If you've been turned down for a conventional loan because of your tax returns or debt-to-income ratio, a DSCR loan solves that problem. Your personal financials stay out of the equation.
How the DSCR Ratio Works
The DSCR ratio is a simple formula:
DSCR = Monthly Rent ÷ Monthly Mortgage Payment
The mortgage payment includes principal, interest, taxes, insurance, and HOA fees (if any). The rent is the property's gross rental income - either actual rent from a lease or projected market rent from an appraisal.
Example Calculation
Say you're buying a rental property. The expected rent is $2,400 per month. The total mortgage payment (including taxes and insurance) is $1,920 per month.
$2,400 ÷ $1,920 = 1.25 DSCR
A DSCR of 1.25 means the property earns 25% more than its monthly costs. That's a strong ratio that most lenders will approve.
What Different DSCR Ratios Mean
- DSCR above 1.25: The property cash-flows well. Easier approvals, better rates, lower down payments.
- DSCR of 1.0: Rent exactly covers the payment. Breakeven. Most lenders will still approve this.
- DSCR below 1.0: Rent doesn't fully cover the payment. Some lenders allow ratios as low as 0.75, but expect higher rates and larger down payments.
Pro Tip: A DSCR of 1.25 or higher unlocks the best terms - lower rates, 15% down in some programs, and faster approvals. If you're between properties, focus on deals that hit this number.
DSCR Loan Requirements
DSCR loans are easier to qualify for than conventional mortgages, but they still have standards. Here's what most lenders look for:
- Credit score: 660+ minimum. 700+ gets better rates.
- Down payment: 15% to 25%. Higher DSCR and credit scores qualify for lower down payments.
- DSCR ratio: 1.0 minimum at most lenders. Some allow 0.75 with trade-offs.
- Cash reserves: 3 to 6 months of mortgage payments in the bank after closing.
- Property types: Single-family, 2-4 units, condos, townhomes. Must be investment property (not primary residence).
- Loan amounts: $50K to $5M per property.
- Loan terms: 30-year fixed or adjustable-rate options.
Key Takeaway
DSCR loans strip out the personal income verification that blocks most investors. No W-2s, no pay stubs, no tax returns. The property's rent is the qualification.
- 660+ credit score to qualify
- 15–25% down payment
- $50K to $5M per property, 30-year terms
DSCR vs Conventional Mortgage
If you're comparing a DSCR loan to a conventional investment mortgage, the differences come down to how you qualify and how far you can scale.
| Criteria | DSCR Loan | Conventional |
|---|---|---|
| Income verification | None - rental income only | Full W-2s, tax returns, DTI ratio |
| Property limit | No limit | 10 financed properties max |
| Down payment | 15–25% | 15–25% |
| Credit score | 660+ | 620+ (680+ for investment) |
| LLC ownership | Yes | No (personal name only) |
| Closing speed | 2–4 weeks | 30–45 days |
| Interest rates | Slightly higher (mid-6% to 7%+) | Lower (based on personal credit) |
| Best for | Scaling a portfolio, self-employed investors | First 1–2 rentals with strong W-2 income |
For your first rental property with a strong W-2 job, conventional usually wins on rate. But once you hit 3-4 properties - or if you're self-employed - DSCR becomes the better path. No DTI limits, no property caps, and you can close in an LLC. (Not sure where your credit score stands for financing? We break that down separately.)
Who Uses DSCR Loans
DSCR loans work for a specific type of investor. If any of these describe you, DSCR is worth exploring:
Buy-and-Hold Investors
You're building a portfolio of long-term rentals. You already own several properties and conventional lenders are getting difficult. DSCR lets you keep going with no property cap.
Airbnb and Short-Term Rental Operators
You run properties on Airbnb or VRBO. Many DSCR programs count short-term rental income. Some use your actual booking history. Others use projected market rent from an appraiser.
Self-Employed Investors
Your tax returns show low income because of write-offs. Conventional lenders see a problem. DSCR lenders don't look at your returns at all.
BRRRR Strategy Investors
Buy, Rehab, Rent, Refinance, Repeat. DSCR loans are the refinance exit in this strategy. After you fix up a property and rent it out, you refinance into a DSCR loan, pull cash out, and fund the next deal.
Pro Tip: If you're using the BRRRR strategy, aim for properties where the after-repair value puts your loan-to-value at 75% or lower. This gives you room for a cash-out refinance and keeps your DSCR ratio strong.
Frequently Asked Questions
Do I need to show personal income or tax returns for a DSCR loan?
No. DSCR loans qualify based on the property's rental income, not your personal income. You will not need W-2s, pay stubs, or tax returns. The lender looks at the property's rent compared to its mortgage payment.
Can I use a DSCR loan for Airbnb or short-term rentals?
Yes. Many DSCR programs allow short-term rental income from platforms like Airbnb and VRBO. Some lenders use actual booking history. Others use projected rental income from a market analysis. Ask your advisor which approach applies to your property.
What is the down payment for a DSCR loan?
Most DSCR loans require 15% to 25% down. The exact amount depends on your credit score, the property's DSCR ratio, and the loan amount. Stronger credit and higher DSCR ratios can qualify for lower down payments - as low as 15% in some programs.
Are there limits on how many properties I can finance with DSCR loans?
No. Unlike conventional mortgages that cap you at 10 financed properties, DSCR loans have no limit. Each property qualifies on its own rental income. This makes DSCR the preferred tool for investors building large portfolios.
Can I borrow through an LLC with a DSCR loan?
Yes. DSCR loans allow borrowing through an LLC, which many investors prefer for liability protection. You can close in the name of your LLC or other business entity without needing to hold the property in your personal name.
See If You Qualify for a DSCR Loan
Find out what rates and terms you can get - based on the property, not your tax returns.
Check DSCR Loan Options