Real Estate Lending

DSCR Loans Explained

Understanding DSCR loans helps real estate investors secure financing based on property income, not personal income.

DSCR loans (Debt-Service Coverage Ratio loans) are real estate financing where approval is based on the property's rental income covering loan payments, not your personal income or tax returns. Lenders calculate DSCR by dividing net rental income by annual debt payments. Most require a DSCR of 1.20-1.25 (rental income 20-25% higher than payments). DSCR loans are ideal for real estate investors who want to qualify based on property performance rather than personal finances.

What Are DSCR Loans?

DSCR loans are a type of investment property financing that evaluates the property's ability to pay for itself through rental income. Unlike traditional loans that focus on your personal debt-to-income ratio, DSCR loans focus on the property's financial performance.

This makes them ideal for real estate investors, especially those who:

✓Are self-employed or have complex tax situations
✓Want to qualify for multiple properties without personal debt limits
✓Have strong rental properties but lower personal income
✓Need faster approval than traditional loans provide

How DSCR Works

The debt-service coverage ratio measures how well rental income covers loan payments:

DSCR = Net Rental Income ÷ Annual Debt Payments

Net Rental Income Includes:

• Gross monthly rent × 12
• Minus: Property taxes, insurance, maintenance (5-10%), vacancy allowance (5-10%)
• Minus: Property management fees (if applicable)

Annual Debt Payments Include:

• Principal payments
• Interest payments
• Property taxes and insurance (if escrowed)

Calculate your DSCR with our DSCR calculator. Learn more about what a DSCR loan is.

DSCR Requirements

Most lenders require a DSCR of 1.20-1.25 minimum, meaning rental income must be 20-25% higher than debt payments. Here's what different ratios mean:

1.50+ (Excellent)

Strong cash flow. You'll get the best rates and terms. Property generates significant income beyond debt payments.

1.25-1.50 (Good)

Meets most lender requirements. Good cash flow with comfortable margin. Competitive rates available.

1.20-1.25 (Minimum)

Meets minimum requirements but tight. May need higher down payment or pay slightly higher rates.

Below 1.20 (Not Qualified)

Rental income doesn't cover payments. Loan will be denied. Need to increase rent, reduce purchase price, or increase down payment.

Benefits of DSCR Loans

No Tax Returns Required: Qualification based on property income, not personal income. Ideal for self-employed investors or those with complex tax situations.
Faster Approval: Less documentation than traditional loans since personal finances matter less. Many lenders approve within 1-2 weeks.
Multiple Properties: Can qualify for multiple DSCR loans without personal debt-to-income limits blocking you.
Investment Focus: Designed for investors, not owner-occupants, with terms and rates tailored to rental properties.

Typical DSCR Loan Terms

Loan Details:

• Amounts: $100k-$5M+
• Terms: 15-30 years
• Rates: 5.5-14% APR
• LTV: 70-80% of property value

Requirements:

• DSCR: 1.20-1.25+ minimum
• Down payment: 20-30%
• Credit score: 650+
• Cash reserves: 3-6 months

When to Use DSCR Loans

DSCR loans are ideal for:

Rental Property Purchases: Buying investment properties with existing or projected rental income.
Portfolio Expansion: Adding more properties to your investment portfolio without personal debt limits blocking you.
Self-Employed Investors: Qualify based on property income rather than personal tax returns.
Fast Closings: Need to close quickly on investment opportunities (1-2 weeks vs 4-12 weeks for traditional loans).

Frequently Asked Questions

What's a good DSCR ratio?

Most lenders require 1.20-1.25 minimum. Higher is better—1.50+ gets you better rates and terms. Below 1.20 means rental income doesn't cover payments, so loans are typically denied. Learn more about debt-service coverage ratio.

Can I use DSCR loans for fix-and-flip properties?

DSCR loans are for rental properties with income. For fix-and-flip, consider bridge loans or construction loans instead.

Do I need rental history for a DSCR loan?

Existing rental income helps, but lenders can use market rent estimates for new purchases. They'll verify rent comparables in the area.

What's the difference between DSCR loans and traditional investment loans?

DSCR loans focus on property income (DSCR ratio). Traditional investment loans focus on personal income and debt-to-income ratios. DSCR loans are faster and require less personal financial documentation.

Ready to Finance Rental Property?

Get DSCR loan approval based on property income, not personal income.

Apply Now Learn More

Fast approval • Based on property income • Real estate experts