DSCR Loans

A DSCR (Debt Service Coverage Ratio) loan is an investment property mortgage that qualifies you based on the property's rental income instead of your personal income. The lender calculates the DSCR by dividing the property's monthly rental income by the monthly mortgage payment (PITI - principal, interest, taxes, insurance). A DSCR of 1.0 means the property breaks even, while 1.25 means the rent covers 125% of the payment. This program is ideal for real estate investors who want to expand their portfolio without personal income limitations.

DSCR is calculated by dividing the property's gross monthly rental income by the total monthly mortgage payment (PITI). Formula: DSCR = Monthly Rent ÷ Monthly PITI. For example, if a property rents for $3,000/month and the PITI is $2,400, the DSCR is 1.25 ($3,000 ÷ $2,400 = 1.25). Most lenders require a minimum DSCR of 1.0, though some programs accept 0.75 with compensating factors like larger down payments or higher credit scores.

Most DSCR loan programs require a minimum ratio of 1.0, meaning the rental income equals the mortgage payment. However, some lenders offer programs with DSCR as low as 0.75 (property has negative cash flow) if you put down 30% or more and have strong credit (680+). Properties with DSCR of 1.25 or higher receive the best rates and terms. The higher your DSCR, the stronger your loan application and the better your pricing.

No, DSCR loans do not require personal income documentation like tax returns, W-2s, or pay stubs. The loan is qualified entirely on the property's rental income. You'll need to provide a lease agreement (for occupied properties) or a rent schedule/appraisal showing market rents (for vacant properties). This makes DSCR loans perfect for self-employed borrowers, retirees, or investors who don't want to disclose personal income.

Minimum credit scores for DSCR loans typically start at 620, but 640+ is preferred for better rates. Borrowers with 680+ credit scores receive the most competitive pricing. Credit scores below 640 may require larger down payments (30%) and will have higher interest rates. Recent late payments on mortgages or significant derogatory marks can impact approval even with acceptable credit scores.

DSCR loans typically require 20-25% down payment. Properties with DSCR of 1.0 or higher usually need 20-25% down. Properties with DSCR below 1.0 (negative cash flow) require 30-35% down to offset the risk. Larger down payments can also help secure better interest rates and compensate for lower credit scores. Some lenders offer 15% down for properties with very strong DSCR (1.5+) and excellent credit.

DSCR loans are available for 1-4 unit residential investment properties including single-family homes, duplexes, triplexes, and fourplexes. Both long-term rentals and short-term rentals (Airbnb, VRBO) are eligible. Condos and townhomes are also acceptable. The property must be investment property (not owner-occupied) and must be rent-ready or currently rented. Some lenders also allow non-warrantable condos and unique properties.

Yes, many DSCR lenders accept short-term rental income from platforms like Airbnb and VRBO. The lender will use either actual rental history (if you've been operating for 12+ months) or a market rent analysis from the appraisal. Short-term rentals often generate higher income than traditional leases, which can result in stronger DSCR ratios. Some lenders may require larger down payments (25-30%) for short-term rental properties.

No, DSCR loans have no limit on the number of financed properties. Unlike conventional loans (which typically cap at 10 financed properties), DSCR programs allow unlimited properties as long as each property qualifies on its own cash flow. This makes DSCR loans ideal for portfolio investors looking to scale their rental business without hitting conventional loan limits.

DSCR loan rates are typically 1-2.5% higher than conventional investment property rates. Current rates range from 7.25% to 9.00% depending on credit score, down payment, DSCR ratio, and property type. Properties with DSCR of 1.25+ and borrowers with 720+ credit scores receive the best pricing. Rates are also influenced by loan amount, property location, and whether the property is long-term or short-term rental.

For vacant properties, lenders use the appraiser's market rent analysis. The appraisal will include a rent schedule showing comparable rental properties in the area and an estimated market rent for your property. Some lenders apply a 75% factor to the market rent to be conservative. If you have a signed lease for a tenant moving in soon, that can also be used to establish rental income.

Yes, DSCR loans are available for cash-out refinancing on investment properties. You can access up to 75-80% of the property's value depending on the DSCR and your credit profile. This is popular among investors who want to pull equity from one property to fund down payments on additional properties. The property's rental income must still support the new, higher mortgage payment.

Yes, DSCR loans typically require 6-12 months of reserves (PITI payments) for the subject property. If you own multiple financed properties, lenders may require reserves for all properties or just the subject property, depending on the program. Reserves can include checking/savings accounts, retirement accounts (70% of vested balance), stocks, bonds, and other liquid assets. Larger reserve amounts can offset lower credit scores or DSCR ratios.

DSCR loans typically close in 21-30 days, similar to conventional mortgages. The timeline depends on how quickly you provide documentation (lease agreements, property insurance, reserves) and the appraisal turnaround time. Since no personal income verification is required, the process is often faster than traditional loans. Having organized documentation and responsive communication can expedite closing.

Yes, for purchase transactions, lenders use the appraiser's market rent analysis to determine the property's rental income potential. You don't need an existing tenant or lease in place. The appraisal will show what similar properties rent for in the area, and that figure is used to calculate DSCR. Some lenders apply a 75% factor to market rents for vacant properties to be conservative.

Some DSCR programs accept properties with negative cash flow (DSCR as low as 0.75) if you have strong compensating factors. You'll typically need to put down 30-35%, have a credit score of 680+, and show significant reserves (12+ months). These programs are designed for investors buying in appreciating markets where rental income may not cover the full payment initially, but the property has strong long-term value.

Some DSCR loan programs include prepayment penalties, typically lasting 1-5 years. Prepayment penalty structures vary: some are step-down (3-2-1% declining over three years), others are soft penalties (only apply to refinances, not sales). You can often choose between a loan with a prepayment penalty (lower rate) or without (slightly higher rate). Always review the loan terms to understand any penalties before closing.

Yes, DSCR loans allow you to take title in an LLC, trust, or other legal entity. This is a major advantage for investors who want liability protection. The entity must be a single-member LLC or you must personally guarantee the loan. Some lenders require the LLC to be established before closing, while others allow you to transfer title to an LLC after closing.

Required documentation includes: current lease agreement (if property is rented) or appraisal with market rent analysis (if vacant), property insurance quote, HOA documents (if applicable), 6-12 months of reserve statements, credit report authorization, and LLC/entity documents (if taking title in entity name). You do NOT need to provide tax returns, W-2s, pay stubs, or employment verification. This streamlined documentation makes DSCR loans much simpler than traditional mortgages.

DSCR loans offer more flexibility but come with trade-offs. Advantages: no personal income verification, unlimited properties, faster approval, entity ownership allowed. Disadvantages: higher interest rates (1-2.5% more), larger down payments (20-25% vs 15-20%), prepayment penalties possible. For investors with strong rental income but complex personal finances, or those wanting to scale beyond 10 properties, DSCR loans are often the better choice despite higher costs.