What Is a DSCR Loan? How Investors Qualify on Rental Income

A DSCR loan (debt service coverage ratio loan) is a business-purpose mortgage for investment property that qualifies on the property's rental income rather than your personal income. There are no W-2s and no tax returns. For self-employed investors and anyone scaling a portfolio, it is often the difference between a yes and a no.

How DSCR is calculated

DSCR compares the property's income to its debt payment:

• DSCR = Monthly rent ÷ Monthly payment (PITIA)
• A DSCR of 1.00 means the rent exactly covers the payment.
• Above 1.00 means positive cash flow; below 1.00 means the property needs a little support.

Example: a home that rents for $2,400/month against a $2,000 payment has a DSCR of 1.20. We lend with a DSCR as low as 0.75.

What you need to qualify

• The rent figure, from a signed lease or the appraiser's market-rent estimate
• A down payment (typically 20-25%) or equity for a refinance
• A qualifying credit profile (we lend from roughly a 640 score)
• The property held in an LLC or your name for business purposes

When a DSCR loan is the right tool

Choose DSCR when your tax returns understate your real income, when you are buying through an LLC, or when you want to add doors without your debt-to-income ratio getting in the way. It pairs naturally with the BRRRR method as the long-term refinance leg.

DSCR vs conventional

Conventional financing is usually the lowest-cost money if your file fits the box and you can document income. DSCR trades a slightly higher rate for speed, simplicity, and qualifying on the asset. Many investors use both, deal by deal.

If you want cash out and want to keep your loan

A refinance replaces your loan. If you would rather leave your existing first mortgage alone and tap the equity, a second mortgage on an investment property adds a loan behind it instead, as a lump sum or a line of credit. The second mortgage calculator shows how much equity room you have. Typical terms: $50,000 to $1,000,000, a fixed rate from 6.99%, up to 80% CLTV on investment property, with a minimum 1.00 DSCR, subject to underwriting. That 1.00 minimum is for the second mortgage; the DSCR rental loan above goes as low as 0.75.