Resources · 6 min read
DSCR Loans 101
How DSCR loans work, how the ratio is calculated, and when they make sense.
A DSCR (Debt Service Coverage Ratio) loan qualifies you on what a property earns, not what you earn. If the rent covers the mortgage payment, you can qualify — no tax returns, no W-2s, no personal debt-to-income calculation. Because they're business-purpose loans rather than owner-occupied mortgages, they also sit outside the consumer Ability-to-Repay rule the CFPB applies to primary residences, which is part of why qualifying is so streamlined. That single difference is why DSCR has become the default financing tool for investors scaling past their second or third rental.
How the ratio is calculated
- DSCR = monthly rental income ÷ monthly debt service (principal, interest, taxes, insurance, and HOA dues if applicable — often shortened to PITIA)
- A property renting for $2,500/month against a $2,000 PITIA payment has a DSCR of 1.25
- Above 1.0 means the rent covers the payment; below 1.0 means it doesn't, and you're covering the gap out of pocket
What counts as a good DSCR
- 1.25+ — Strong. Usually qualifies for the best pricing and leverage a lender offers.
- 1.00–1.24 — Workable. Most programs still qualify you here, often with a small rate or leverage adjustment.
- Below 1.00 — Still financeable on many programs, just expect less leverage or a rate trade-off since the property alone isn't covering the payment.
Conventional and conforming loans — the kind Fannie Mae and Freddie Mac buy — qualify you on personal income and debt-to-income, and they cap how many mortgages you can carry no matter how strong your portfolio's cash flow is (Fannie Mae, for instance, limits a borrower to 10 financed properties). DSCR removes your personal income from the equation entirely, so each new purchase is judged on its own merits. That's the whole reason investors building past four or five properties move to DSCR.
What you'll need
- A signed lease (existing tenant) or a market rent estimate from the appraisal (vacant or new purchase)
- Down payment or equity — DSCR loans commonly go up to ~85% LTV depending on DSCR and credit
- Reasonable credit — requirements vary by program, but DSCR is generally more flexible than conventional since income isn't the primary qualifying factor
- No tax returns, no employment verification, no personal DTI calculation
Common ways investors use DSCR
- Purchasing a buy-and-hold rental
- Refinancing out of a bridge or hard money loan once a property is stabilized and rented
- Cash-out refinancing an owned rental to fund the next purchase
Run your own numbers on the calculator on the home page, or tell us about the deal and we'll tell you exactly where it lands.
Sources & references
- Fannie Mae — Rental Income (Selling Guide)
- Freddie Mac — Investment Property Mortgages
- CFPB — Mortgages
Educational references only. Program terms are set by the lender and vary by deal — not a commitment to lend.
Have a deal in mind? Tell us about it and we'll tell you exactly where it lands.
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