What is a DSCR Loan?
A DSCR loan (Debt Service Coverage Ratio loan) is a type of mortgage for real estate investors where qualification is based on the property's rental income — not your personal income or tax returns. This makes DSCR loans especially popular with self-employed investors, landlords with multiple properties, and anyone whose income is difficult to document the traditional way.
The DSCR Formula
PITIA = Principal + Interest + Taxes + Insurance + Association dues
A DSCR of 1.0 means the property breaks even — income exactly covers the debt. Most lenders require at least 1.20–1.25 to approve a loan. Some lenders offer "no-ratio" DSCR loans (below 1.0) at higher interest rates.
DSCR by Property Type
Requirements vary depending on property type and loan purpose. Cash-out refinances typically require higher DSCR (1.25+) than purchases or rate-and-term refinances.
| Loan Type | Typical Min. DSCR | Max LTV | Notes |
|---|---|---|---|
| Purchase (SFR) | 1.10 – 1.20 | 80% | Most common product |
| Rate & Term Refi | 1.10 – 1.20 | 75% | Same as purchase |
| Cash-Out Refi | 1.25 – 1.30 | 70% | Stricter requirements |
| 2–4 Unit | 1.20 – 1.25 | 75% | Vacancy risk factor |
| No-Ratio (< 1.0) | 0.75 – 0.99 | 65–70% | Higher rate / niche lenders |
How to Improve Your DSCR
- Increase rent — even $100–200/month more can push DSCR above threshold
- Larger down payment — reduces P+I, improving the ratio
- Shop interest rates — a 0.5% rate difference meaningfully changes monthly P+I
- Negotiate HOA dues — some lenders exclude low HOA amounts from PITIA
- Use market rent — if property is under-rented, lenders may use appraised market rent
DSCR vs Traditional Mortgage
Traditional investment property loans require 2 years of tax returns, W-2s, and personal income qualification. DSCR loans skip all of that — the property qualifies itself. The trade-off is slightly higher interest rates (typically 0.5–1.5% above conventional rates) and a larger minimum down payment (usually 20–25%).