DSCR — Debt Service Coverage Ratio — loans are the fastest-growing product in investor lending. They qualify based on the property's rent, not your personal income. Here is what they are, how they work, and when to use one.
The Core Idea
With a conventional loan, the lender qualifies you. They look at your W-2, tax returns, DTI ratio, and employment history. With a DSCR loan, the lender qualifies the property. They look at what it rents for vs. what the monthly payment would be.
How It Works
DSCR = Gross Monthly Rent ÷ Monthly PITI. If the property rents for $2,500 and the new loan PITI would be $2,000, DSCR is 1.25. Most lenders require 1.25 minimum for best pricing, 1.0 minimum to qualify at all.
Key Features
- 30-year fixed or ARM
- No personal income documentation
- No DTI calculation
- Close in LLC or personal name
- No limit on number of financed properties
- Rates typically 75–125 bps over conventional investor
- Max LTV 75–80% on purchase, 75% on cash-out refi
Who Uses DSCR
- Self-employed investors with complex tax returns
- Investors at the 10-property Fannie/Freddie cap
- Portfolio investors wanting to close in LLC
- BRRRR investors refinancing bridge loans
- 1099 contractors, real estate professionals, entrepreneurs
Rates and Pricing Factors
- DSCR ratio (1.0 vs. 1.25 vs. 1.5)
- LTV (65% vs. 75% vs. 80%)
- FICO (680 vs. 720 vs. 760)
- Prepayment structure
- Cash-out vs. rate-and-term
- Property type (SFR, 2–4 unit, condo)
Example Deal
You buy a $310K rental in Baltimore County. Lease in place at $2,500/month. You put 25% down ($77,500), borrow $232,500 at 7.5% on a 30-year fixed DSCR.
- P&I: $1,626
- Taxes + insurance: $340
- Total PITI: $1,966
- DSCR: $2,500 ÷ $1,966 = 1.27
Loan qualifies comfortably. Closes in 7–10 days. No W-2, no tax returns needed.
Common Misconception
People think DSCR rates are "way higher" than conventional. In 2026 the gap has narrowed to 50–100 bps for strong borrowers. For anyone who cannot easily qualify conventionally — self-employed, over 10 properties, complex tax return — DSCR is often the only path.
DSCR Products
- 30-year fixed — most common
- 10/1 ARM — 50+ bps cheaper; great for planned holds under 10 years
- Interest-only — 10 years IO, then amortizes over 20; boosts cash flow early
- 40-year amortization — lower payment, better DSCR
Bottom Line
DSCR is the workhorse of serious rental investor financing. Understanding the product unlocks access to capital that conventional lending cannot provide. If you own or plan to own more than 3–4 rentals, you will use DSCR eventually.
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