Loan Types

What Is a DSCR Loan?

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

A DSCR loan (Debt-Service Coverage Ratio loan) is 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 (meaning rental income is 20-25% higher than loan payments). DSCR loans are ideal for real estate investors who want to qualify based on property performance rather than personal finances.

How DSCR Loans Work

DSCR loans evaluate the property's ability to pay for itself:

Calculate Rental Income

Lender determines property's net rental income (gross rent minus expenses like property taxes, insurance, maintenance, vacancy allowance).

Calculate DSCR

DSCR = Net Rental Income ÷ Annual Debt Payments. Most lenders require 1.20-1.25 minimum (rental income 20-25% higher than payments). Use our DSCR calculator to estimate.

Loan Approval

If DSCR meets requirements, loan is approved based on property performance. Personal income and tax returns are less important than with traditional loans.

How to Calculate DSCR

The DSCR formula is:

DSCR = Net Rental Income ÷ Annual Debt Payments

Net Rental Income Includes:

• Gross monthly rent × 12
• Minus: Property taxes
• Minus: Insurance
• Minus: Maintenance/repairs (typically 5-10% of rent)
• Minus: Vacancy allowance (typically 5-10% of rent)
• Minus: Property management fees (if applicable)

Annual Debt Payments Include:

• Principal payments
• Interest payments
• Property taxes (if escrowed)
• Insurance (if escrowed)

Calculate your DSCR with our DSCR calculator.

DSCR Loan Example

Property: Rental property with $3,000/month rent

Annual Gross Rent: $3,000 × 12 = $36,000

Annual Expenses:

• Property taxes: $3,600
• Insurance: $1,200
• Maintenance (8%): $2,880
• Vacancy (5%): $1,800
• Total Expenses: $9,480

Net Rental Income: $36,000 - $9,480 = $26,520

Annual Debt Payments: $20,000

DSCR = $26,520 ÷ $20,000 = 1.33

✓ Meets 1.25 requirement - Loan approved!

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.
Multiple Properties: Can qualify for multiple DSCR loans without personal debt-to-income limits.
Investment Focus: Designed for investors, not owner-occupants, with terms and rates tailored to rental properties.

DSCR Loan Requirements

Property Requirements:

✓ Investment/rental property
✓ Existing rental income or market rent
✓ Property appraisal
✓ DSCR of 1.20-1.25+

Borrower Requirements:

✓ 650+ credit score
✓ Down payment (20-25%)
✓ Real estate investment experience
✓ Cash reserves (3-6 months)

Typical DSCR Loan Terms

• Amounts: $100k-$5M+
• Terms: 15-30 years
• Rates: 5.5-14% APR (higher than owner-occupied)
• LTV: 70-80% of property value
• Down Payment: 20-30%
• DSCR Requirement: 1.20-1.25 minimum

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 DSCR loans explained.

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.

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Fast approval • Based on property income • Real estate experts