DSCR loan
Debt-Service Coverage Ratio loan. A non-QM investment property loan that qualifies based on the property’s projected rental income rather than the borrower’s personal income. DSCR = monthly rent ÷ monthly PITI. Most lenders require a ratio of 1.0–1.25 or higher. No personal income documentation required.
How it works in practice
The ratio itself is simple division: the property's monthly rent over its full monthly payment (principal, interest, taxes, insurance, and any association dues). Rent of $2,500 against a $2,000 payment is a 1.25 DSCR. At 1.0 the property exactly carries itself; above it there's margin; below it the rent doesn't cover the debt and pricing reflects that.
Where the rent number comes from matters as much as the math. On a purchase, lenders order a market-rent appraisal (the single-family version is Form 1007) and use the appraiser's opinion or the executed lease — commonly the lower. Short-term-rental income is program-specific: some lenders average 12 months of platform statements, others insist on the long-term market figure, and the difference can swing the ratio dramatically for a vacation-market property.
Most programs want 1.0–1.25 or better for standard pricing. Below 1.0, options continue but tighten: lower maximum loan-to-value, higher rates, or "no-ratio" variants that skip the calculation entirely in exchange for more equity. Because DSCR loans are business-purpose credit, expect investor-style features conventional borrowers never see — prepayment penalties are common, entity (LLC) vesting is routine, and occupancy by the borrower is prohibited.
Common questions
Does my personal income matter at all on a DSCR loan?
Credit score, reserves, and real-estate experience matter; your paystubs and tax returns generally don't. That's the program's entire premise — the property qualifies on its own cash flow. Expect reserve requirements of several months of the property's payment.
What DSCR do I need for the best pricing?
Programs typically tier at 1.0 and 1.25: at or above 1.25 gets the best terms, 1.0–1.25 is standard, and below 1.0 costs rate or equity. A larger down payment mechanically raises the ratio by shrinking the payment — the main lever you control.
Related terms
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- Jumbo loan — A mortgage exceeding the conforming loan limit set by Fannie Mae and Freddie Mac (≈$806,500 for a single-famil…
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- Conventional loan — A mortgage that conforms to Fannie Mae and Freddie Mac guidelines. Not government-insured. Lowest rates for bo…
- FHA loan — A mortgage insured by the Federal Housing Administration. Allows lower down payments (3.5% with 580+ credit),…
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Sources
Educational definition only — not financial, legal, or tax advice. Programs and limits change; verify current terms with a licensed professional.