What Is a DSCR Loan?

What Is a DSCR Loan?

A DSCR loan is an investment property mortgage that qualifies borrowers based on a property's rental income instead of personal income. DSCR stands for Debt Service Coverage Ratio — the relationship between how much rent the property generates and how much the mortgage payment costs.

With a conventional mortgage, the lender asks: "Does this person earn enough to afford this payment?" With a DSCR loan, the lender asks: "Does this property earn enough to cover its own payment?"

That distinction changes everything. There are no W-2s to produce, no tax returns to explain, no employer verification calls, and no debt-to-income ratio to worry about. If the property cash flows, you qualify.

DSCR loans exist because traditional mortgage underwriting doesn't work well for real estate investors. Investors who own multiple properties, take aggressive depreciation deductions, or are self-employed often show low taxable income on paper — even when their actual cash flow is strong. DSCR loans solve this by underwriting the asset, not the individual.

How DSCR Loans Work

A DSCR loan works by measuring whether a rental property's income can support its debt. The lender calculates the DSCR ratio by dividing the property's gross rental income by its total housing payment (known as PITIA: principal, interest, taxes, insurance, and any association dues).

If a property rents for $2,500/month and the total PITIA payment is $2,000/month, the DSCR is 1.25. That means the property generates 25% more income than the mortgage costs — a comfortable margin for lenders.

Lenders determine your rental income one of two ways. If the property has an existing lease, they use the lease amount. If the property is vacant or being purchased, they order a 1007 rent schedule as part of the appraisal, which estimates fair market rent based on comparable rentals in the area.

Once the lender has the DSCR ratio, they combine it with your credit score, down payment, and property type to determine your rate, loan amount, and terms. Higher DSCR ratios unlock better pricing — a DSCR of 1.25+ is considered strong, while anything above 1.0 means the property covers its own costs.

How to Calculate Your DSCR

Calculating your DSCR is straightforward. You need two numbers: the property's monthly rental income and the monthly PITIA payment.

Step-by-Step Example

Say you're evaluating a property with these numbers:

Item	Monthly Amount
Gross rent	$2,200
Principal & Interest	$1,340
Property taxes	$275
Insurance	$110
HOA dues	$0
Total PITIA	$1,725

DSCR = $2,200 ÷ $1,725 = 1.28

A 1.28 DSCR is strong. This property generates 28% more income than its mortgage costs, which qualifies for the best DSCR loan programs and rates.

What the DSCR Tiers Mean

DSCR Range	What It Means	Lender Treatment
1.25+	Property generates strong surplus income	Best rates, widest lender selection, lowest down payment
1.0 – 1.24	Property covers its costs with thin margin	Standard programs, slightly higher rates
0.75 – 0.99	Property doesn't fully cover the payment	Available but 25-30% down, higher rates, more reserves
Below 0.75	Property significantly under-covers debt	Disqualified from most DSCR programs

Who DSCR Loans Are For

DSCR loans aren't for everyone. They're a specialized tool designed for specific types of real estate investors. You're a strong candidate if:

• You're self-employed or a business owner whose tax returns don't reflect your actual earning power due to write-offs and depreciation
• You already own 5-10+ properties and are hitting conventional loan limits or DTI constraints
• You want to hold properties in an LLC for liability protection — DSCR loans close directly in entity names
• You're a full-time real estate investor without traditional W-2 employment
• You need to close quickly on a competitive deal — DSCR underwriting is simpler and faster than conventional
• You're a foreign national investing in U.S. real estate — some DSCR programs accept non-resident borrowers

DSCR loans are not ideal if you have strong W-2 income, fewer than 10 properties, and are rate-sensitive. In that case, conventional financing will be cheaper. Many experienced investors use both loan types strategically — conventional for the first 10 properties, then DSCR to scale beyond.

Pros and Cons of DSCR Loans

DSCR Loan Requirements at a Glance

DSCR loan requirements center on the property's cash flow and the borrower's creditworthiness — not income. Here's a quick reference. For a deep dive, see our complete DSCR loan requirements guide.

Requirement	Typical Range	Notes
Minimum DSCR	0.75 – 1.25	1.0+ standard; 0.75 with higher down payment
Credit score	660 – 720+	660 minimum; 720+ for best rates
Down payment	20% – 30%	20-25% standard; 25-30% for weaker profiles
Interest rates	7.0% – 9.5%	Varies by credit, LTV, DSCR, and rate type
Cash reserves	3 – 12 months	PITIA reserves; more for lower DSCR/credit
Loan amount	$75K – $3M+	Most cap at $1.5-2M; jumbo available
Loan terms	30-year fixed or 5/6 ARM	Interest-only options at some lenders
Prepayment penalty	1 – 5 years	Common; buydown options available

Read the full breakdown: DSCR Loan Requirements (2026) →

Eligible Property Types

DSCR loans cover most residential investment properties, though some types come with additional requirements or restrictions:

• Single-family homes (SFR) — The most common and universally accepted DSCR property type
• 2-4 unit properties — Duplexes, triplexes, and quads are standard at all DSCR lenders; combined rent is used for the DSCR calculation
• Condos and townhomes — Accepted by most lenders; the HOA must meet financial health standards
• 5-8 unit properties — Some DSCR lenders handle these; others refer to commercial programs
• Short-term rentals (Airbnb/VRBO) — Increasingly accepted with 12-24 months of documented rental history; income typically haircut to 75-90%
• Mixed-use — Possible if the residential portion is 51%+ of total square footage

Properties that don't qualify for DSCR loans include raw land, properties under renovation (use hard money or bridge loans instead), mobile homes on leased land, and commercial-only buildings.

Interest Rates & Costs

DSCR loan rates run 1-2% above conventional investment property rates. As of early 2026, expect these ranges:

Rate Type	Typical Range	Best For
30-year fixed	7.5% – 9.5%	Long-term buy-and-hold investors
5/6 ARM	7.0% – 8.5%	Investors planning to refi or sell within 5-7 years
Interest-only	7.5% – 9.0%	Maximizing cash flow in the early years

The biggest rate drivers are your credit score (each 20-point tier shifts the rate 0.125-0.25%), loan-to-value ratio (lower LTV = better rate), DSCR ratio (1.25+ gets the best pricing), and prepayment penalty term (accepting a 3-5 year prepay saves 0.25-0.50%).

Beyond the Rate: Total Cost to Watch

DSCR loans also come with origination fees (typically 1-2 points), appraisal fees ($500-800 for a full appraisal + 1007 rent schedule), and potentially a prepayment penalty if you refinance or sell early. Factor these into your deal analysis alongside the interest rate.

For a detailed rate-vs-conventional comparison with real dollar examples, see our DSCR vs. Conventional Loans guide.

The DSCR Loan Application Process

DSCR loans move faster than conventional mortgages because the documentation is simpler. Here's what the process looks like from start to close:

Step 1: Know Your Numbers

Before you talk to a lender, calculate your DSCR ratio using our free tool. You'll want to know your expected rent, estimated mortgage payment, taxes, insurance, and any HOA dues. A DSCR above 1.0 means you're in the game.

Step 2: Get Pre-Qualified

Reach out to a DSCR lender. Pre-qualification typically involves a soft credit pull and basic property details. You'll get a rate quote and term sheet within 24-48 hours. Most investors work with mortgage brokers who shop multiple DSCR lenders.

Step 3: Submit Your Deal

Once you have a property under contract, submit the loan application with these documents: loan application (1003), two months of bank statements, credit report authorization, signed lease or rent roll (if existing tenant), proof of insurance, and entity documents if purchasing in an LLC.

That's it — no tax returns, no W-2s, no profit and loss statements.

Step 4: Appraisal & Underwriting

The lender orders a full appraisal with a 1007 rent schedule (market rent analysis). The appraiser determines both the property value and the fair market rent. Underwriting reviews the file and issues a conditional approval, typically within 5-10 business days of receiving the appraisal.

Step 5: Clear Conditions & Close

Address any underwriting conditions (usually minor documentation clarifications), do a final review, and close. Most DSCR loans close in 21-30 days from application — sometimes faster if the appraisal comes back quickly.