What Is DSCR Loan (Debt Service Coverage Ratio)?

A DSCR loan lets you qualify for an investment property mortgage based on the property’s rental income instead of your personal wages or tax returns. Your DSCR is calculated by dividing the property’s gross rental income by the total monthly debt payment (principal, interest, taxes, insurance), and most lenders require a ratio of 1.0 to 1.25 or higher.

For example, if a rental property generates $2,500 per month in rent and the total mortgage payment including taxes and insurance is $2,000, the DSCR is 1.25 ($2,500 ÷ $2,000). This meets most lender thresholds. DSCR loans typically require 20%–25% down, carry interest rates 1%–2% higher than conventional owner-occupied loans, and are popular with self-employed investors or those with complex income who want a streamlined qualification process.

Key Facts

• DSCR formula: Monthly rental income ÷ monthly mortgage payment (PITIA)
• Minimum ratio: Most lenders require 1.0–1.25; some allow as low as 0.75 with a larger down payment
• Down payment: Typically 20%–25% for a DSCR loan
• No personal income docs: Qualification is based on property cash flow, not W-2s or tax returns
• Higher rates: Expect rates 1%–2% above conventional owner-occupied mortgage rates
• Property types: Single-family rentals, 2–4 unit properties, condos, and short-term rentals in many cases

Frequently Asked Questions

Who is a DSCR loan best for?

DSCR loans are ideal for real estate investors, self-employed borrowers, and anyone whose tax returns do not fully reflect their ability to repay. If you own rental property that produces strong cash flow, a DSCR loan can simplify qualification since the lender focuses on the property’s income rather than yours.

Can I use a DSCR loan for a short-term rental like Airbnb?

Many DSCR lenders do allow short-term rental income, though they may use projected income from a market analysis or actual booking history rather than a standard lease. Requirements vary by lender, so confirm their policy on short-term rentals before applying.