Traditional mortgage underwriting relies heavily on personal income documented through W-2s and tax returns. For real estate investors — especially self-employed ones — this creates significant barriers. DSCR loans solve this problem.
What Is a DSCR Loan?
A Debt Service Coverage Ratio (DSCR) loan qualifies the borrower based on the rental income of the property, not the borrower’s personal income.
The DSCR is calculated as:
Monthly rental income ÷ Monthly mortgage payment (PITI) = DSCR
Example:
- Property rents for $3,200/month
- Total mortgage payment (P+I+T+I) = $2,500/month
- DSCR = 3,200 ÷ 2,500 = 1.28
Most lenders require a DSCR of 1.0–1.25 (breakeven to slightly positive cash flow).
Who DSCR Loans Are For
- Real estate investors with multiple properties
- Self-employed buyers whose tax returns show lower income than they earn
- W-2 employees who’ve maxed out their debt-to-income ratio through other properties
- Buyers of short-term rentals (Airbnb/VRBO) — lenders may use projected STR income
DSCR Loan Characteristics
- Typically require 20–25% down payment
- Higher rates than conforming loans (usually 1–2% above conventional)
- No income documentation required from borrower
- Credit score requirements: 680–720 minimum
- Available for 1–4 unit properties and sometimes small multi-family
Advantages
- Scale your portfolio without income constraints
- Close much faster than conventional investment loans
- Use entity (LLC) structure in some cases
- No employment verification
We have helped investors use DSCR loans to rapidly scale their portfolios, often purchasing multiple properties per year without ever showing personal income documents.