If you’re a real estate investor looking to finance rental properties, a DSCR loan (Debt Service Coverage Ratio loan) can be a powerful tool. Unlike traditional mortgages, DSCR loans focus on the property’s income potential rather than your personal income.
But what exactly do you need to qualify?
In this comprehensive guide, we’ll break down:
✔ What is a DSCR loan?
✔ Key DSCR loan requirements (credit, down payment, DSCR ratio)
✔ How to calculate your DSCR
✔ Best lenders for DSCR loans
✔ Tips to improve your approval odds
Let’s dive in!
What Is a DSCR Loan?
A DSCR loan is a type of mortgage designed for rental property investors. Instead of relying on your personal income (like W-2s or tax returns), lenders evaluate:
- The property’s rental income
- Its ability to cover the mortgage payments (measured by the DSCR ratio)
This makes DSCR loans ideal for:
✅ Real estate investors
✅ Self-employed borrowers
✅ Those with multiple rental properties
DSCR Loan Requirements for Rental Properties
1. Minimum Credit Score
Most DSCR lenders require a minimum credit score of 620-680. However:
- Private lenders may accept 580+
- Hard money lenders may go as low as 500 (but with higher rates)
📌 Pro Tip: If your credit is below 620, consider:
- Adding a co-signer
- Making a larger down payment
- Using a portfolio lender
2. Down Payment Requirements
DSCR loans typically require 20-30% down, depending on:
- Lender type (banks vs. private lenders)
- Credit score (lower credit = higher down payment)
- Property type (single-family vs. multifamily)
| Lender Type | Min. Down Payment |
|---|---|
| Traditional Bank | 25-30% |
| Private Lender | 20-25% |
| Hard Money Lender | 30-35% |
3. Debt Service Coverage Ratio (DSCR) Requirement
The DSCR ratio is the most critical factor. It measures:
DSCR = Net Operating Income (NOI) / Annual Mortgage Payments
- DSCR ≥ 1.0 = Property income covers the mortgage (minimum for approval)
- DSCR ≥ 1.25 = Preferred by most lenders
- DSCR < 1.0 = Higher risk (may require a lower LTV or higher interest rate)
📌 Example Calculation:
- Property NOI (Rent – Expenses): $30,000/year
- Mortgage Payments: $24,000/year
- DSCR = $30,000 / $24,000 = 1.25
4. Property Type & Condition
- Eligible Properties: Single-family, multifamily, townhouses, some short-term rentals (Airbnb)
- Non-Eligible: Fix-and-flips, commercial properties (unless specified)
- Property Must Be Rent-Ready (some lenders require leases in place)
5. Reserve Requirements
Many lenders require 6-12 months of mortgage payments in reserves.
6. Loan Terms & Interest Rates
- Loan Term: 5-30 years
- Interest Rates: Typically higher than conventional loans (6-10% in 2024)
- Prepayment Penalties: Some lenders charge fees for early payoff
How to Apply for a DSCR Loan
Step 1: Find a DSCR Lender
- Banks & Credit Unions (strict requirements)
- Private Lenders (more flexible)
- Hard Money Lenders (fast but expensive)
Step 2: Prepare Your Documents
- Property Financials (rent rolls, leases, tax returns)
- Credit Report (check for errors)
- Down Payment Proof (bank statements)
- Reserves Documentation
Step 3: Submit & Close
- Underwriting takes 2-4 weeks
- Closing costs: 2-5% of loan amount
FAQs About DSCR Loan Requirements
❓ Can I get a DSCR loan with no income verification?
✅ Yes! DSCR loans don’t require personal income checks.
❓ What’s the lowest DSCR ratio accepted?
Some hard money lenders accept 0.75, but most require 1.0+.
❓ Can I use a DSCR loan for a fix-and-flip?
❌ No. DSCR loans are for cash-flowing rentals, not renovations.
❓ How can I improve my DSCR ratio?
- Increase rent
- Reduce expenses
- Put more money down
Final Tips for DSCR Loan Approval
✔ Boost your credit score before applying
✔ Choose a high-rental-income property
✔ Work with a mortgage broker for better terms
✔ Compare multiple lenders for the best rates
🔑 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.