What a DSCR Loan Is

Why this loan exists

Conventional investment-property lending qualifies the borrower: two years of tax returns, a debt-to-income ratio that must absorb every mortgage you already hold, and a cap on the number of financed properties. For a self-employed investor whose returns are written to show little, or for anyone past a handful of rentals, that math fails even when every property cash flows. DSCR lending grew up to fix exactly that. It treats each rental as the small business it is and asks the only question that matters to the lender: does this property's rent cover this property's payment?

How the ratio works

Divide the monthly rent by the monthly payment. A ratio of 1.00 means the rent exactly covers principal, interest, taxes, insurance and dues; above 1.00 the property throws off cash after the payment; below 1.00 it does not. Each program sets the ratio it wants to see, and some have options for properties that fall short — a larger down payment, a different structure, or a program built for lower ratios. The calculation page walks through what counts as rent and what counts as payment, and the calculator on the home page runs the arithmetic with no credit pull.

What the file actually contains

• Rent evidence. A current lease if the property is rented; otherwise the appraiser's market-rent analysis. On a short-term rental, some programs accept booking history — see the short-term rental page.
• The appraisal, which establishes value and, where needed, market rent.
• Credit. A credit report is pulled; the score standard is set by the program. Your income is not part of it.
• Reserves. Most programs want to see some months of the payment in liquid assets after closing; how many is set by the program.
• Entity documents, if you are closing in an LLC — articles, operating agreement, and usually a personal guarantee from the members.
• Insurance — landlord policy, plus flood where required.

What it is not

It is not a loan for the home you live in. DSCR loans are business-purpose loans on non-owner-occupied property; a primary residence or a second home is a consumer loan with different rules. If you are self-employed and want equity out of your own home, that is a different product — a bank-statement HELOC, covered on its own site.

It is also not free of trade-offs. DSCR pricing typically runs above conventional, most programs carry a prepayment penalty for the first years, and the down payment on a purchase is generally larger than an owner-occupant's. Those are the price of leaving your income out of the file, and for many investors it is a price worth paying; for some it is not. The comparison page lays the two side by side.

Who this fits

• Self-employed investors whose returns understate their income
• Investors with several financed properties who have hit conventional limits
• Owners buying or refinancing in an LLC
• Short-term rental operators whose income does not fit a conventional file
• Anyone who would rather the loan be judged on the deal than on their personal finances

Common questions