A DSCR loan is a mortgage for investment property that qualifies you on the rent the property earns instead of your personal income. Lenders divide the monthly rent by the monthly payment (principal, interest, taxes, insurance and any HOA dues). If the result is 1.0 or higher, the property pays for itself and most DSCR programs will consider the loan. No tax returns, W-2s or pay stubs are required.
Key takeaways
- DSCR = monthly rent ÷ monthly PITIA. Most lenders want 1.0 or higher, and 1.20 to 1.25+ earns the best pricing.
- Typical 2026 terms: 620 to 680+ credit, 20% to 25% down, 30-year fixed or ARM options, rates roughly in the 6% to 8% range.
- DSCR loans are for investment property only. You cannot live in the home.
- You can close in an LLC, finance short-term rentals, and pull cash out without showing personal income.
What Is a DSCR Loan?
DSCR stands for debt service coverage ratio. It measures whether a property’s income covers its debt payments. A DSCR loan is a non-QM, business-purpose mortgage that uses that ratio as the main qualification test. Because the loan is underwritten on the asset, it suits self-employed investors, full-time landlords, and anyone whose tax returns show heavy depreciation and write-offs.
How Lenders Calculate DSCR
For 1 to 4 unit rentals, most lenders use a simple formula:
DSCR = Gross monthly rent ÷ Monthly PITIA
Rent comes from the current lease or, for a vacant or newly purchased property, the appraiser’s market rent estimate (Form 1007 for a single-family home, Form 1025 for 2 to 4 units). Many lenders use the lower of the lease or market rent.
Example: A rental leases for $2,600 per month. Principal and interest are $1,620, taxes $310, insurance $140 and HOA $0, for PITIA of $2,070. DSCR = 2,600 ÷ 2,070 = 1.26. That clears most programs and should price near the lender’s best rate tier.
For 5+ unit apartments and commercial property, lenders switch to net operating income (NOI) divided by annual debt service. Our guide to DSCR commercial loan requirements covers that version in detail.
DSCR Loan Requirements in 2026
| Requirement | Typical range |
|---|---|
| Minimum DSCR | 1.0 (some programs allow 0.75 or no ratio) |
| Credit score | 620 minimum; 680 to 720+ for best pricing |
| Down payment (purchase) | 20% to 25% |
| Cash-out refinance LTV | Up to 70% to 75% |
| Reserves | 3 to 12 months of PITIA |
| Loan size | About $75,000 to $3 million+ |
| Property types | 1 to 4 units, condos, townhomes, short-term rentals; 5+ units through commercial DSCR |
| Prepayment penalty | Often 3 to 5 years, stepping down; buyouts available at a higher rate |
What DSCR Loans Cost
DSCR loans price above conventional investor loans because they are non-QM. Through 2026, typical quotes have run from about 6% for the strongest files to 8% or more for thinner coverage, lower credit or higher leverage. The biggest pricing levers are your DSCR, LTV, credit score, loan size and the length of the prepayment penalty you accept. A longer prepay usually buys a lower rate.
Run your own numbers with our commercial loan calculator, which shows payment, LTV and DSCR side by side.
DSCR vs. Conventional Investor Loans
| DSCR loan | Conventional investor loan | |
|---|---|---|
| Qualifies on | Property rent | Your income and DTI |
| Documents | Lease, appraisal, bank statements for reserves | Tax returns, W-2s, pay stubs |
| Close in an LLC | Yes | Generally no |
| Number of financed properties | No agency cap | Agency limit of 10 |
| Rate | Higher | Lower |
If you have clean W-2 income and fewer than 10 financed properties, a conventional loan may be cheaper. If you are scaling, self-employed, or buying in an entity, DSCR usually wins on speed and simplicity.
Common Ways Investors Use DSCR Loans
- Buying in an LLC. See DSCR loans for LLCs.
- Short-term rentals. See DSCR loans for Airbnb and VRBO properties.
- Properties that don’t quite cover. See no-ratio and sub-1.0 DSCR loans.
- Pulling equity to buy the next one. See DSCR cash-out refinance.
- Refinancing out of a bridge or flip loan once a property is rented, the final step of the BRRRR strategy.
How the DSCR Loan Process Works
- Pre-qualify on the property. Share the address, purchase price or value, rent and your credit range.
- Get a term sheet. Rate, LTV, prepayment structure and estimated closing costs.
- Order the appraisal with a rent schedule. This sets both value and market rent.
- Submit entity and asset documents. LLC paperwork if applicable, plus two months of bank statements for down payment and reserves.
- Close. Purchases commonly close in 21 to 30 days.
Mistakes That Sink DSCR Files
- Underestimating taxes and insurance, which drags the ratio below 1.0 after the appraisal.
- Planning to live in the property. Owner occupancy disqualifies the loan.
- Ignoring the prepayment penalty when you plan to sell or refinance within three years.
- Thin reserves. Lenders verify liquid funds after closing.
Worked Example: Running a DSCR Deal From Offer to Close
An investor buys a $400,000 single-family rental in an LLC with 25% down.
| Line item | Amount |
|---|---|
| Loan amount (75% LTV) | $300,000 |
| Principal and interest (7%, 30-year fixed) | $1,996 / month |
| Property taxes | $400 / month |
| Insurance | $150 / month |
| Total PITIA | $2,546 / month |
| Market rent (appraiser’s Form 1007) | $3,000 / month |
| DSCR | 1.18 |
At 1.18 the loan qualifies but may sit one pricing tier below the best rate. Switching to an interest-only payment of $1,750 lowers PITIA to $2,300 and lifts DSCR to 1.30, which often improves the rate. Cash to close is roughly $100,000 down, about $12,000 in closing costs, and around $15,000 in reserves (six months of PITIA), so plan on about $127,000 of liquid funds.
What Moves Your DSCR Rate
DSCR lenders price from a base rate and then add or subtract adjustments. The biggest levers:
| Factor | Better pricing | Worse pricing |
|---|---|---|
| DSCR | 1.25 and above | Below 1.0 |
| LTV | 65% or less | 75% to 80% |
| Credit score | 740+ | 620 to 659 |
| Prepayment penalty | 5 years | None |
| Loan size | $150,000 to $1.5 million | Under $100,000 or jumbo |
| Property | Single-family, long-term lease | Short-term rental, non-warrantable condo, rural |
| Loan purpose | Purchase or rate-and-term refi | Cash-out refinance |
Paying discount points can also buy the rate down. Ask for a quote at par and with points so you can compare the break-even period against your planned hold.
Prepayment Penalties Explained
Most DSCR loans carry a prepayment penalty because investors buy them in securitized pools that expect a minimum life. Common structures:
- 5-4-3-2-1: 5% of the balance if you pay off in year one, 4% in year two, and so on.
- 3-2-1: a three-year step-down, usually with a slightly higher rate.
- Flat: for example 3% for three years.
- No penalty: available at a higher rate.
Choose the penalty to match your plan. If you might sell or refinance in two years, a five-year penalty that saves 0.25% on the rate can cost far more than it saves. A few states restrict prepayment penalties on residential loans to individuals, so your lender will confirm what applies to your property and borrower type.
Fixed, ARM and Interest-Only Options
- 30-year fixed: the most common choice for long-term holds.
- 40-year term: lowers the payment, often paired with a 10-year interest-only period.
- 5/6 and 7/6 ARMs: fixed for 5 or 7 years, then adjusting every six months. Usually priced below the 30-year fixed.
- Interest-only: commonly 5 to 10 years, and many lenders calculate DSCR on the IO payment. Compare scenarios in our interest-only calculator.
DSCR Programs by Property Type
| Property | Notes |
|---|---|
| Single-family and townhomes | Widest lender choice and best pricing |
| 2 to 4 units | Rent from all units; appraiser uses Form 1025 |
| Warrantable condos | Similar to single-family |
| Non-warrantable condos and condotels | Fewer lenders, lower LTV |
| Short-term rentals | Qualify on booking history or projections. See STR DSCR loans |
| 5 to 10 units | Offered by some “small balance” DSCR programs using NOI |
| Larger apartments and mixed-use | Commercial DSCR. See mixed-use loan requirements |
Portfolio and Blanket DSCR Loans
Once you own several stabilized rentals, a blanket DSCR loan can refinance them under one note, with one closing, one payment and one set of fees. Lenders usually want five or more properties and a combined DSCR of 1.20 or higher. Ask for partial release provisions so you can sell one property without refinancing the whole portfolio. Cross-collateralization means a weak property can drag on the others, so model the portfolio’s combined coverage carefully.
First-Time Investors and Foreign Nationals
First-time investors can get DSCR loans from many lenders, though some cap LTV at 75%, require a higher credit score, or want you to own your primary residence. Foreign nationals without U.S. credit can qualify with several lenders, usually with 25% to 30% down, a U.S. bank account for reserves, an LLC or other entity, and a rate premium.
DSCR Document Checklist
- Government ID and credit authorization for each guarantor
- Purchase contract or current mortgage statement
- Lease agreements (or STR booking history)
- Two months of bank statements for down payment and reserves
- LLC documents: articles, operating agreement, EIN letter, certificate of good standing
- Hazard insurance quote naming the borrower
- HOA contact and dues, if applicable
DSCR vs. Other Investor Loan Types
| Loan | Best for | Term |
|---|---|---|
| DSCR | Stabilized rentals, long-term holds | 30 years |
| Bank statement loan | Self-employed borrowers, often owner-occupied | 30 years |
| Bridge or fix and flip | Properties needing work or quick closes | 6 to 24 months. See the bridge loan guide |
| Conventional investor | W-2 borrowers with fewer than 10 financed properties | 15 to 30 years |
Frequently Asked Questions
Do DSCR loans require tax returns?
No. DSCR loans qualify the property on its rental income. Lenders review credit, the appraisal and rent schedule, the lease, and bank statements to verify down payment and reserves.
What is a good DSCR for a rental property?
A DSCR of 1.0 means the rent exactly covers the payment. Most lenders approve at 1.0 and give their best pricing at 1.20 to 1.25 or higher.
Can I get a DSCR loan with a 620 credit score?
Some lenders go to 620, but expect a larger down payment, lower maximum LTV and a higher rate. Scores of 680 to 720+ unlock the strongest terms.
Can I live in a property financed with a DSCR loan?
No. DSCR loans are business-purpose loans for investment property only. Primary residences and second homes need a different product.
How long does a DSCR loan take to close?
Most DSCR purchases close in about 21 to 30 days, mostly driven by the appraisal timeline.
Can a first-time investor get a DSCR loan?
Yes. Many DSCR lenders work with first-time investors, though some limit LTV to about 75%, require a higher credit score, or prefer that you own your primary residence.
Can foreign nationals get DSCR loans?
Several lenders offer DSCR loans to foreign nationals without U.S. credit, usually with 25% to 30% down, reserves in a U.S. bank account, and a higher rate.
Is there a limit on how many DSCR loans I can have?
There is no agency cap like the 10-property limit on conventional loans. Individual lenders may set exposure limits, but many investors hold dozens of DSCR loans across lenders.
Can I use a DSCR loan for a 5+ unit apartment building?
Some small balance DSCR programs finance 5 to 10 units using net operating income. Larger apartment buildings move to commercial DSCR, agency or bank financing.
Have a deal in mind? Tell us the address, price and rent and we will show you which DSCR programs fit. Tell us about the deal and we will match it with the lenders that fit.