DSCR Loans Explained
A DSCR loan (debt service coverage ratio loan) is a rental property mortgage that qualifies you mainly on the property's rent instead of your tax returns. That makes it popular with self-employed investors and people growing a portfolio.
How DSCR is calculated
DSCR = monthly rent ÷ monthly payment (principal, interest, taxes, insurance and HOA)
Rent of $2,200 against a $1,850 payment is a DSCR of about 1.19. Lenders define the numbers slightly differently, so ask how yours calculates it.
Typical requirements
- DSCR of 1.0–1.25 or higher for the best terms; some lenders go lower with more down.
- 20–25% down payment, or 70–80% loan-to-value on a refinance.
- Credit score minimums, often around 660–700.
- Cash reserves of several months of payments.
Pros and cons
- Pros: no personal income verification, can close in an LLC, no limit on the number of financed properties with many lenders.
- Cons: higher rates and fees than conventional loans, and prepayment penalties are common.