DSCR Loans Explained for Real Estate Investors

💡 What Is a DSCR Loan?

DSCR stands for Debt Service Coverage Ratio, and it’s a key metric used by lenders to evaluate income-producing properties. A DSCR loan is a type of real estate loan designed for rental property investors — especially those who don’t want to qualify using their personal income, W-2s, or tax returns.

Instead of looking at your job or income history, lenders use the property’s rental income to determine if the loan can be repaid.

📊 How DSCR Is Calculated

The basic formula is:

DSCR = Gross Rental Income / Monthly Debt Payments

Example:

• Gross monthly rent = $2,000

• Monthly mortgage (PITI) = $1,600

• DSCR = 2000 / 1600 = 1.25

✅ Most lenders want to see DSCR ≥ 1.0, with 1.1–1.25 being a common threshold.

✅ Pros of DSCR Loans

• No personal income verification (no W2s or tax returns)

• Great for self-employed, LLCs, or full-time investors

• Focuses on the property’s performance, not your personal finances

• Can be used for short-term or long-term rentals

• LLC ownership is typically allowed

⚠️ Cons and Considerations

• Higher interest rates than conventional loans

• Larger down payment (often 20–25%)

• Must have good credit (typically 680–700+ FICO)

• Must show rent potential via lease, appraisal, or rent schedule

• Can’t use for primary residence

📌 Minimum Requirements (Typical)

RequirementTypical DSCR Loan CriteriaCredit Score680+DSCR Threshold1.00–1.25 (varies by lender)Down Payment20–25%Property TypesSFR, duplex, 4-plex, condo, townhomeOwnershipLLC or personal name (LLC preferred)Income VerificationNone required

🧮 What If DSCR Is Below 1?

If the property’s rent doesn’t fully cover the mortgage, you might still get approved — but expect:

• A higher interest rate

• Larger reserves required

• Stricter underwriting

• Lower LTV allowed (more down)

💼 Best Use Cases for DSCR Loans

• Out-of-state or remote investors

• Self-employed investors without traditional income

• Portfolio investors using LLCs

• Investors buying cash-flowing rentals

🧰 Tools to Calculate DSCR Easily

Here are some great tools that make DSCR analysis fast and simple:

• DealCheck – Deal analyzer with DSCR built-in

• BiggerPockets Calculators – Trusted by investors

• PropertyREI DSCR Calculator – Excel-based DSCR tool

• YourLender’s DSCR App – Many lenders provide custom calculators

🧠 Tip: Run DSCR before making any offers — it’s a key investor metric.

🏦 Popular DSCR Lenders to Explore

These lenders specialize in DSCR-based loan programs:

• Kiavi – Fast closing, great for investors

• LendingOne – DSCR and fix-and-flip programs

• Visio Lending – DSCR loans for short- and long-term rentals

• The Mortgage Shop – DSCR-friendly for Airbnb rentals

• StraightLine – No-ratio, no-doc, and DSCR programs

👉 Note: Some of these may offer affiliate programs you can apply to!

🧠 Final Thoughts

DSCR loans have changed the game for real estate investors — especially for those who:

• Don’t want to verify income

• Use LLCs or other legal structures

• Invest in rental cash flow instead of job-based approval

If you’re building a rental portfolio, especially across state lines, a DSCR loan may be your best financing option.

📥 Want to Learn More?

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