DSCR Loans
DSCR (Debt Service Coverage Ratio) loans qualify real estate investors based on the rental income of the property — not personal income or tax returns. They're the go-to program for scaling a rental portfolio.
At a glance
| Minimum down payment | 20%–25% |
|---|---|
| Minimum credit score | 660 typical; best pricing at 720+ |
| Maximum loan amount | Up to $3M+ depending on program |
| Mortgage insurance | None required |
Best for
- Real estate investors with multiple properties
- Self-employed buyers with complex tax returns
- Investors who write off significant rental income on Schedule E
- Buyers using LLC ownership structures
- Short-term rental (Airbnb) operators
Eligibility requirements
- Property's rental income must cover the mortgage payment (DSCR ≥ 1.0; some lenders allow 0.75)
- Credit score of 660+ (varies by lender and DSCR ratio)
- 20%–25% down payment
- 3–6 months of reserves per property
- Investment property only — no primary residence allowed
- Lease agreement or market rent appraisal (Form 1007)
Pros
- No personal income, employment, or tax return verification
- Can close in an LLC for asset protection
- Unlimited number of properties (no Fannie Mae 10-property cap)
- Faster underwriting than full-doc investor loans
- Short-term rental income often counts toward DSCR
Cons
- Higher interest rates than owner-occupied financing (usually 1%–2% above conventional)
- Larger down payment requirement
- Prepayment penalties common (often 3–5 years)
- Cash reserves required per property
Documents you'll need
- Credit report and authorization
- Property appraisal with rent schedule (Form 1007)
- Existing lease agreement (if leased) or market rent analysis
- Two months of bank statements showing reserves
- Entity documents if closing in an LLC (operating agreement, EIN)
- Insurance quote/binder
Why DSCR changed real estate investing
DSCR loans solved the biggest scaling problem investors faced: getting denied on the 6th or 7th rental despite strong rental income, simply because the tax returns showed paper losses. By underwriting the property’s cash flow instead of the borrower’s tax return, DSCR makes it possible to keep buying.
If you’re past 4 financed properties or write off significant depreciation on Schedule E, DSCR is almost always the right move for your next acquisition.
Frequently asked questions
- How is the DSCR ratio calculated?
- DSCR = Gross Monthly Rent ÷ Monthly PITIA (principal, interest, taxes, insurance, association dues). A DSCR of 1.25 means the rent covers 125% of the mortgage payment.
- Can I use Airbnb income for a DSCR loan?
- Yes, with most DSCR lenders. Some require a 12-month rental history (e.g., AirDNA report or actual receipts), while others accept market rent based on a long-term lease.
- Can I close a DSCR loan in an LLC?
- Yes, this is one of the biggest advantages of DSCR financing. You'll need to provide your LLC's operating agreement, EIN, and personal guarantees from the members.
- Are there prepayment penalties on DSCR loans?
- Most DSCR programs include a prepayment penalty for the first 3–5 years. You can usually buy out the prepay penalty for a higher interest rate.
Related loan programs
- Non-QM Loans — Non-Qualified Mortgage (Non-QM) loans are designed for borrowers whose income, credit, or property doesn't fit the strict Qualified Mortgage rules — including investors, self-employed, foreign nationals, and recent credit-event borrowers.
- Bank Statement Loans — Bank statement loans qualify self-employed borrowers using 12 or 24 months of business or personal bank statements instead of tax returns — perfect for owners whose tax returns understate true cash flow.
- Conventional Loans — Conventional loans aren't backed by a government agency, follow Fannie Mae and Freddie Mac guidelines, and reward strong credit with the lowest rates and most flexible terms available.