What Is a DSCR Loan?
A DSCR (Debt Service Coverage Ratio) loan is a type of Non-QM mortgage designed for real estate investors. Instead of verifying your personal income through W-2s, pay stubs, or tax returns, the lender qualifies you based on the rental income the property generates relative to the debt payments on the loan.
This makes DSCR loans especially popular with:
- Self-employed investors who write off heavily on their taxes
- Portfolio builders scaling beyond conventional loan limits
- Investors who want to close in an LLC
- BRRRR strategy operators refinancing after stabilization
How the DSCR Ratio Works
The DSCR ratio is a simple calculation:
DSCR = Gross Rental Income ÷ Total Debt Service
Total debt service includes your principal, interest, taxes, insurance, and HOA (if applicable) — commonly referred to as PITIA.
Example
- Monthly Rent: $2,400
- PITIA (mortgage + taxes + insurance): $2,000
- DSCR = $2,400 ÷ $2,000 = 1.20
A DSCR of 1.20 means the property generates 20% more income than the debt payments — a comfortable margin for most lenders.
What DSCR Do You Need?
| DSCR Range | Interpretation |
|---|---|
| 1.25+ | Strong — best rates and terms |
| 1.10–1.24 | Good — widely accepted |
| 1.00–1.09 | Workable — some programs available |
| Below 1.00 | Challenging — limited options, may need reserves |
Most lender programs require a minimum DSCR of 1.0, though some allow lower ratios with compensating factors like larger reserves or a lower LTV.
Key Benefits
- 1No personal income verification — your tax returns stay in the drawer
- 2Entity vesting — close in an LLC or corporation
- 3Streamlined process — fewer documents, faster timelines
- 4Scalable — no cap on the number of DSCR loans
- 5Available for purchase and refinance — including cash-out
What to Watch Out For
- Down payments are typically 20–25% (higher than conventional)
- Rates are usually slightly higher than agency products
- The property must demonstrate rental income potential
- Prepayment penalties are common (often 3-2-1 or 5-4-3-2-1 step-down)
Who Should Consider a DSCR Loan?
DSCR loans are ideal for investors who want to scale without being limited by personal income documentation. If you're buying rentals, refinancing stabilized properties, or running a BRRRR strategy — DSCR is likely the right lane.
Next Steps
Use our Long Term Rental Calculator to model a deal, or schedule with a Prime Advisor to discuss your specific scenario with an advisor.