If you’re looking to invest in rental properties but don’t qualify for traditional mortgages, a DSCR loan might be the perfect financing solution. In this beginner’s guide, we’ll explain what a DSCR loan is, how it works, its benefits, and how to qualify for one.
What Is a DSCR Loan?
A Debt Service Coverage Ratio (DSCR) loan is a type of mortgage used primarily for rental property investments. Unlike conventional loans that focus on the borrower’s personal income, DSCR loans evaluate the property’s ability to generate enough rental income to cover the mortgage payments.
How Does a DSCR Loan Work?
Lenders calculate the Debt Service Coverage Ratio (DSCR) to determine loan eligibility. The formula is:
DSCR = Net Operating Income (NOI) / Annual Debt Obligations
- DSCR > 1.0: The property generates enough income to cover the mortgage (ideal for approval).
- DSCR = 1.0: The property breaks even (some lenders may still approve).
- DSCR < 1.0: The property doesn’t generate enough income (higher chance of denial).
Most lenders require a minimum DSCR of 1.0 to 1.25, but requirements vary.
Benefits of a DSCR Loan
- No Personal Income Verification – Your personal tax returns or W-2s aren’t required.
- Great for Investors – Ideal for real estate investors with multiple properties or self-employed borrowers.
- Flexible Terms – Loan terms typically range from 5 to 30 years, with fixed or adjustable rates.
- Quick Approvals – Faster underwriting since lenders focus on the property’s cash flow.
- No Occupancy Requirement – Unlike traditional loans, DSCR loans are strictly for investment properties.
Who Qualifies for a DSCR Loan?
While requirements vary by lender, common criteria include:
- Minimum credit score: Usually 620+ (some lenders accept lower).
- Down payment: Typically 20-25% for investment properties.
- Property must be cash-flow positive (DSCR ≥ 1.0).
- Reserves: Some lenders require 6-12 months of mortgage payments in reserves.
How to Get a DSCR Loan
- Find a DSCR Lender – Banks, credit unions, and private lenders offer these loans.
- Prepare Financial Documents – Property rent rolls, lease agreements, and operating expenses.
- Calculate Your DSCR – Ensure your property meets the lender’s ratio.
- Apply & Close – Submit your application and complete the underwriting process.
DSCR Loan vs. Traditional Mortgage
| Feature | DSCR Loan | Traditional Mortgage |
|---|---|---|
| Income Verification | Property cash flow only | Personal income required |
| Credit Score | 620+ (some accept lower) | Usually 680+ |
| Down Payment | 20-25% | 3-20% (depending on loan type) |
| Property Type | Investment only | Primary, secondary, or investment |
| Approval Speed | Faster (focus on property income) | Slower (full income underwriting) |
Final Thoughts: Is a DSCR Loan Right for You?
A DSCR loan is an excellent option for real estate investors who want to finance rental properties without traditional income verification. If your property generates strong rental income, this loan can help you expand your portfolio with fewer hurdles.
Want to explore DSCR loan options? Contact a lender specializing in investment property financing today!
Take the Next Step Toward Financial Freedom
Whether you’re purchasing your next rental or refinancing a cash-flowing property, a DSCR loan can help you scale faster with less red tape.
👉 Apply now with Truss Financial Group — your trusted DSCR loan experts.
📝 Click here to get started today
No tax returns. No stress. Just real funding for real investors