DSCR Loans: Qualify for Investment Property Based on Rental Income
In 2017, non-QM lending—mortgages that fall outside Fannie Mae and Freddie Mac's qualified mortgage standards—accounted for less than 3% of total originations. By 2025, that figure had grown to roughly 12%, according to data from the Mortgage Bankers Association. The fastest-growing product within non-QM lending: the Debt Service Coverage Ratio (DSCR) loan.
Why the surge? Simple. Traditional mortgage qualifying requirements—W-2s, tax returns, personal income verification, DTI calculations—are structurally misaligned with how real estate investors actually build wealth. Investors run legitimate expenses through their properties and LLCs that reduce taxable income significantly. A landlord with $200,000 in gross rental income might show $60,000 in taxable income after depreciation and deductions. Under conventional guidelines, they qualify for a fraction of what their portfolio actually supports.
DSCR loans sidestep personal income entirely. The qualifying question isn't "can this person afford the payment?"—it's "does this property generate enough income to cover its debt service?"
DSCR is calculated as monthly rental income divided by monthly PITIA (principal, interest, taxes, insurance, association dues). A ratio of 1.0 means income equals expenses; 1.25 is considered strong.
As of April 2026, DSCR loan rates range from approximately 6.12% to 10.75%+, with rates tied closely to DSCR ratio, LTV, and credit score.
Most lenders require a minimum 660 credit score and 20–25% down payment.
No personal income verification, tax returns, or DTI calculation required—the property's cash flow is the primary qualification metric.
DSCR loans work for single-family rentals, small multifamily (2–4 units), and short-term rental properties like Airbnb.
What Is DSCR—And Why It Matters
Debt Service Coverage Ratio measures whether a property's rental income is sufficient to cover its mortgage payment and operating costs. Lenders and commercial real estate professionals have used it for decades to evaluate income-producing property loans.
The formula is straightforward:
DSCR = Monthly Gross Rental Income ÷ Monthly PITIA
Where PITIA = Principal + Interest + Taxes + Insurance + Association dues (if applicable)
A DSCR of 1.0 means the property breaks even—rental income exactly covers debt service. A DSCR of 1.25 means income is 25% greater than expenses. A DSCR of 0.85 means the property is cash-flow negative—rental income covers only 85% of debt service.
A single-family rental generates $2,400/month in gross rent. The proposed mortgage payment (PITI) on an $320,000 loan at 7.5% over 30 years, including estimated taxes and insurance, comes to approximately $2,100/month.
DSCR = $2,400 ÷ $2,100 = 1.14
That DSCR of 1.14 would qualify for most DSCR programs, though it wouldn't reach the 1.25 threshold for best-tier pricing.
Use the mortgage calculator to estimate the PITIA component, then divide by the subject property's market rent to get your preliminary DSCR before approaching lenders.
DSCR Ratio Requirements by Lender Tier
Not all DSCR lenders use the same thresholds. Here's how the market breaks down as of 2026:
| DSCR Ratio | Market Tier | Typical Rate Adjustment | Lender Availability |
|------------|------------|------------------------|---------------------|
| 1.25+ | Best tier | Base rate | Most DSCR lenders |
| 1.10–1.24 | Standard | +0.25–0.50% | Most DSCR lenders |
| 1.00–1.09 | Minimum standard | +0.50–0.75% | Many DSCR lenders |
| 0.85–0.99 | Below breakeven | +0.75–1.50% | Fewer lenders; niche programs |
| Below 0.85 | Decline territory | N/A | Very few; specialty only |
A DSCR of 1.0 is the threshold most commonly cited as the minimum. At 1.0, the property exactly covers its debt service—the lender has no income cushion if a tenant vacates or rent drops slightly. Programs that allow below-1.0 DSCRs exist but are niche products with materially higher rates and larger down payment requirements (often 30–35%).
For investors, the practical goal is to purchase properties where the market rent supports a DSCR of 1.20 or higher at your acquisition price and financing terms. This creates a buffer against vacancy and gives you headroom if rates rise on a refinance.
Current DSCR Loan Rates (April 2026)
DSCR loan rates as of April 2026 range from approximately 6.12% to 10.75%+ for 30-year fixed products, according to data from HomeAbroadInc and EasyStreetCap. The spread is wide because DSCR pricing is highly individualized based on:
DSCR ratio: A 1.30 DSCR gets meaningfully better pricing than 1.05.
Credit score: Borrowers with 740+ credit see rates 0.50–1.0% below borrowers at 680.
Loan-to-value (LTV): 70% LTV (30% down) gets better rates than 75% LTV (25% down).
Property type: Single-family homes price better than condos; short-term rentals carry additional adjustments.
Loan amount: Loans above $1 million (jumbo DSCR) add pricing adjustments.
Prepayment penalty: Most DSCR loans carry step-down prepayment penalties (5/4/3/2/1 is common). Borrowers can sometimes buy down the penalty structure.
For a well-qualified borrower—700+ credit, 25% down, 1.25 DSCR, single-family rental—expect rates in the 7.0–7.75% range on a 30-year fixed as of April 2026. More aggressive loan scenarios (680 credit, 20% down, 1.05 DSCR) push into the 8.5–9.5% range.
Credit Score and Down Payment Requirements
Most DSCR lenders require a minimum 660 FICO score. Some niche programs go to 620, but at a significant rate premium. For best-tier pricing, target 720+. The 700–740 range is where pricing improves meaningfully for most lenders.
Unlike conventional loans, DSCR lenders typically use a slightly different credit model—they often look more carefully at mortgage payment history than general credit history, since the borrower's track record managing real estate debt is highly relevant.
Standard DSCR programs require 20–25% down, producing a maximum LTV of 75–80%. Some lenders advertise 15% down programs, but these are uncommon and carry substantial rate premiums that often undermine the investment case.
The case for 25% down (75% LTV) over 20% down (80% LTV) is worth analyzing carefully:
On a $350,000 investment property:
20% down: $70,000 at closing, loan amount $280,000
25% down: $87,500 at closing, loan amount $262,500
The $17,500 additional equity generally reduces your rate by 0.25–0.50%, saving approximately $50–100/month on the payment. Whether that justifies the additional upfront capital depends on your alternative uses for that $17,500—if you could deploy it into another property, the leverage opportunity cost may outweigh the rate savings.
The amortization calculator can help model how different loan amounts and rates affect long-term total cost.
DSCR lenders require you to demonstrate liquid reserves after closing—typically 3–6 months of PITIA per financed property.
For a DSCR borrower with a $2,100/month PITIA on the subject property and an existing rental with a $1,800/month PITIA, the combined monthly obligation is $3,900. At 6 months reserves across both properties, that's $23,400 in liquid assets required beyond down payment and closing costs.
Some lenders require reserves only on the subject property; others require reserves across your entire financed portfolio. If you own 5 rental properties and apply for a 6th, reserve requirements compound quickly. Clarify this upfront with any DSCR lender.
Eligible reserves: checking and savings, money market, CDs, vested retirement accounts (typically 60–70%), stocks and bonds at market value.
How Lenders Determine the Rental Income
The "rental income" used in the DSCR calculation isn't necessarily what you're currently collecting—it's what the market supports. Lenders use one of two sources:
Executed lease agreement: If the property is currently rented under a signed lease, lenders use the documented rent from that lease. A 12-month lease at $2,400/month means $2,400 is used in the calculation.
Appraisal market rent (Form 1007): If the property is vacant or the lender wants to verify market-rate rents, they order a market rent analysis from the appraiser. The appraiser surveys comparable rentals and provides a "market rent" figure. This is particularly important for short-term rental properties (see below).
One nuance: some lenders apply a vacancy adjustment—multiplying gross rent by 0.90 or 0.75 to account for vacancy risk. This is more common on properties in seasonal markets or with limited comparable rental history. Ask specifically whether your lender applies a vacancy factor before modeling your DSCR.
DSCR Loans for Short-Term Rentals (Airbnb / VRBO)
Short-term rental investors have become major DSCR loan users. A property generating $4,200/month in Airbnb revenue with $2,800/month PITIA has a DSCR of 1.50—strong on paper. But lenders approach STR properties with more caution than long-term rentals:
How STR income is typically handled:
Most DSCR lenders use one of these approaches for STR properties:
1. 12-month actual income: If you own the property and have 12 months of documented STR income (from Airbnb/VRBO statements), lenders will use the average monthly income.
2. Market rent from appraisal: If it's a new purchase, the appraiser provides a market rent figure—typically based on long-term rental comps in the area, NOT the STR income potential. This can significantly understate the actual income from a high-performing Airbnb property.
3. STR-specific lenders: A growing number of DSCR programs specifically accept STR income using AirDNA data (a short-term rental analytics provider) or comparable STR comps. These programs are specifically designed for investors in STR-heavy markets.
If you're buying a property specifically for short-term rental, confirm upfront that your DSCR lender will use STR income—not just long-term market rent—or your numbers will look dramatically worse than reality.
DSCR Loans vs. Conventional Investment Property Loans
Investors often ask: why use a DSCR loan when conventional investment property loans exist?
| Factor | Conventional Investment Loan | DSCR Loan |
|--------|------------------------------|-----------|
| Income verification | Full W-2s / tax returns required | None required |
| DTI calculation | Yes—personal DTI must qualify | No personal DTI |
| Max properties financed | 10 (Fannie/Freddie limit) | No hard limit (lender-specific) |
| Rates | ~7.0–8.5% (April 2026) | ~6.12–10.75% |
| Down payment | 15–25% | 20–25% |
| Credit score minimum | 620–680 | 660 |
| Closing timeline | 30–45 days | 21–30 days (faster underwriting) |
| LLC / entity vesting | Requires personal guarantee only | Many allow LLC vesting |
The conventional route is worth pursuing if you qualify—it typically offers lower rates and broader secondary market access. But for investors who:
Report significant business deductions that reduce taxable income
Have more than 10 financed properties (hitting the Fannie Mae limit)
Want to close in an LLC for liability protection
Are self-employed with complex income structures
...DSCR loans are often the superior tool, despite the higher rate.
Loan Structure: Terms, Prepayment Penalties, and ARMs
DSCR loans come in several structures. Understanding them matters because the wrong choice can be costly:
30-year fixed: Most common. Provides payment certainty, which improves your DSCR calculation stability. The standard choice for buy-and-hold investors.
5/1, 7/1, 10/1 ARM: Lower initial rate, then adjusts annually based on an index (typically SOFR). Useful for investors who plan to refinance or sell within the fixed-rate period. The initial rate can be 0.50–1.0% below a 30-year fixed, meaningfully improving early cash flow.
Interest-only (IO) loans: Some DSCR programs offer IO periods (typically 10 years), where you pay only interest for the initial term. IO dramatically improves DSCR because the P&I payment drops (you're only paying interest). Useful for properties with tighter margins but a value-add or appreciation play. Be clear-eyed about the risk: you're building no equity during the IO period.
Prepayment penalties: Most DSCR loans carry prepayment penalties for 3–5 years. A common structure: 5% in year 1, 4% in year 2, 3% in year 3, 2% in year 4, 1% in year 5. On a $280,000 loan, exiting in year 2 triggers a $11,200 prepayment penalty. Model your exit strategy before selecting a loan term.
How to Qualify: Step-by-Step
Step 1: Identify the property and estimate rents. Before approaching lenders, know the property's current rent (if leased) or the market rent in the area. Check Zillow Rentals, Rentometer, or comparable listings.
Step 2: Estimate PITIA. Use the mortgage calculator to calculate the monthly principal and interest at your anticipated rate and loan amount. Add estimated property taxes (typically available from county assessor data) and insurance (get quotes from local agents).
Step 3: Calculate preliminary DSCR. Divide your rent estimate by PITIA. If you're at 1.0 or above, you're in qualifying territory. If below, reconsider the purchase price or look for lenders with below-1.0 programs.
Step 4: Gather required documents. DSCR loans don't require tax returns or pay stubs, but you'll need:
Entity documents (if vesting in LLC)
Bank statements (60 days) showing down payment and reserves
Lease agreement (if property is currently rented)
Step 5: Shop multiple DSCR lenders. DSCR pricing varies significantly across lenders. Get quotes from at least 3–5 sources. Non-QM lenders, private lenders, and some regional banks all offer DSCR programs. Unlike conventional loans, DSCR lenders often have more flexibility to price deals individually.
Step 6: Lock rate and proceed to appraisal. The appraisal will include market rent analysis (Form 1007). If the appraised rent is lower than your projected rent, your DSCR shrinks accordingly—make sure your numbers work at the appraiser's figure, not just your own estimate.
Pros and Cons: An Honest Assessment
Qualifies based on property performance, not personal income
No tax return requirement eliminates the "depreciation trap" that kills qualifying for investors
Faster underwriting—no income verification means simpler documentation
LLC vesting typically allowed (crucial for liability management)
No limit on number of financed properties (lender-specific)
Works for self-employed investors whose returns understate income
Rates run 0.50–2.0% above conventional investment property loans for well-qualified borrowers
Prepayment penalties can be expensive if your plans change
Below-1.0 DSCRs require significantly higher down payments and rates
Short-term rental income may be undervalued by appraisers unfamiliar with STR markets
Less competition among lenders means less pressure on pricing than conventional markets
Not ideal for primary residences or second homes—purpose-built for income properties
What does DSCR stand for in real estate?
DSCR stands for Debt Service Coverage Ratio. It measures how many times a property's rental income covers its monthly debt obligations (principal, interest, taxes, insurance, and HOA). A 1.25 DSCR means the property generates 25% more income than needed to cover debt service—a standard threshold for favorable loan pricing.
Can I use a DSCR loan for my primary residence?
No. DSCR loans are exclusively for non-owner-occupied investment properties. Using a DSCR loan to purchase or refinance a property you intend to live in would misrepresent the transaction. Primary residences require conventional, FHA, VA, or USDA financing.
How is DSCR different from a traditional investment property loan?
Traditional investment property loans require full personal income documentation—W-2s, tax returns, and personal DTI calculation. DSCR loans require none of that. The loan qualifies solely based on whether the property's rental income exceeds its debt service. This makes DSCR ideal for investors whose personal tax returns understate their actual financial position.
What's the minimum DSCR to get approved?
Most mainstream DSCR lenders require a minimum 1.0 DSCR—meaning the property must at least break even. Some niche programs accept DSCRs as low as 0.80 with additional down payment (30–35%) and higher rates. The best rates and terms begin at 1.25 DSCR. Properties below 1.0 DSCR represent below-breakeven financing and carry materially higher costs.
Can I do a cash-out refinance with a DSCR loan?
Yes. DSCR loans are available for both purchases and cash-out refinances. Cash-out DSCR refinances typically allow up to 75% LTV, though some lenders cap cash-out at 70% LTV. This makes DSCR an effective tool for accessing equity in performing rental properties without having to document personal income.
Do DSCR loans show up on my personal credit?
Yes—DSCR loans show on your personal credit report even if the loan is in an LLC's name. The lender requires a personal guarantee, which creates a personal credit obligation. The payment history is reported to credit bureaus. This is one key difference from true commercial non-recourse financing.
How long does DSCR loan underwriting take?
Significantly faster than conventional loans—typically 15–25 days from application to close, versus 30–45 days for conventional investment property loans. The absence of income verification documentation eliminates a major source of underwriting delays. Some DSCR lenders advertise 2-week closes for straightforward transactions.
DSCR loans have become a foundational tool for serious real estate investors—particularly those who've built portfolios that conventional qualifying structures can no longer accommodate. The rate premium is real, but for investors who can acquire properties with 1.25+ DSCRs at current market rents, the math often works. Before applying, model your expected DSCR carefully using the mortgage calculator to estimate PITIA, calculate your reserves with the affordability calculator, and confirm your DTI picture with the DTI calculator if you're also carrying personal debt. The investors who do this analysis before approaching lenders close faster, negotiate better terms, and avoid the surprises that sink deals in underwriting.
Originally published on amortio.com. Visit amortio.com for free interactive calculators and tools.
