What is a DSCR Loan?

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A DSCR (Debt Service Coverage Ratio) loan is an investment property mortgage where qualification is based on the property's rental income rather than your personal income. There is no employment verification, no tax returns, and no W-2s required. The lender evaluates whether the property's income can cover the mortgage payment, making it one of the most popular loan programs for real estate investors.

DSCR loans are sometimes called investor flex loans, rental property loans, or no-income-verification investment loans. Regardless of the name, the concept is the same: the property pays for itself.

How DSCR Works

The Debt Service Coverage Ratio is a simple calculation:

DSCR = Monthly Rental Income / Monthly Mortgage Payment (PITIA)

PITIA stands for Principal, Interest, Taxes, Insurance, and Association dues (HOA). Here is what the ratio means:

• DSCR of 1.25: The property generates 25% more income than the mortgage payment. This is considered strong cash flow.
• DSCR of 1.0: The rental income exactly covers the mortgage payment. The property breaks even.
• DSCR below 1.0: The rental income does not fully cover the mortgage payment. Some programs allow a DSCR as low as 0.75 with compensating factors like a higher credit score or lower LTV.

Example: If the monthly rent on a property is $2,500 and the total PITIA payment is $2,000, the DSCR is 1.25 ($2,500 / $2,000 = 1.25).

DSCR Loan Guidelines

Requirements vary by program, but here are the general guidelines:

• Property Type: Investment properties only. Primary residences and second homes are not eligible.
• Income Verification: None required. No tax returns, W-2s, pay stubs, or employment verification.
• Minimum DSCR: Most programs require a minimum of 0.75 to 1.25. Lower DSCR ratios may require higher credit scores and lower LTVs.
• Credit Scores: Typically from 620 to 680+ depending on the program and DSCR ratio.
• Down Payment: Typically 20-25% (75-80% LTV). Some programs allow up to 80% LTV on purchase transactions.
• Loan Amounts: From $100,000 up to $3-5 million depending on the program.
• Reserves: Typically 6-12 months of mortgage payments in liquid assets.
• Vesting: Can close in your personal name, LLC, corporation, or trust.
• Number of Properties: No limit on the number of financed properties.
• Loan Terms: 30-year fixed rate and adjustable rate (ARM) options available.

Eligible Property Types

DSCR loans can be used for a wide range of investment properties:

• Single family rental homes
• 2-4 unit properties
• Condominiums (warrantable and non-warrantable on select programs)
• Townhomes
• Short-term rentals (Airbnb, VRBO) on select programs

Who Uses DSCR Loans?

DSCR loans are popular with a wide range of real estate investors:

• Experienced investors looking to scale their portfolio quickly without income documentation bottlenecks
• Self-employed investors whose tax returns do not reflect their true income
• First-time investors purchasing their first rental property
• Foreign national investors on select programs
• Anyone who wants to qualify based on the property's income rather than their personal financial profile

DSCR Loan vs. Conventional Investment Loan

With a conventional investment property loan, the lender verifies your personal income (tax returns, W-2s, pay stubs) and counts all your existing debts against your debt-to-income ratio. This can limit how many properties you can finance, especially as your portfolio grows.

With a DSCR loan, the lender only looks at the subject property's income. Your personal income, employment, and existing debt obligations are not factored into the decision. This makes it significantly easier to scale a rental portfolio.

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