🏢 What is a DSCR Loan?
A DSCR Loan (Debt Service Coverage Ratio Loan) is a type of mortgage designed for real estate investors. Instead of using personal income to qualify, lenders look at the property's ability to generate rental income.
📊 What is DSCR?
DSCR stands for Debt Service Coverage Ratio. It measures how well a property’s income can cover its debts. The formula is:
DSCR = Net Operating Income (NOI) ÷ Debt Obligations
For example, if a property brings in $2,000/month in rent and the mortgage is $1,600/month, the DSCR is: 1.25. That means the income covers the debt 1.25 times.
🎯 Who Are DSCR Loans For?
- Real estate investors
- Borrowers with complex or limited income documentation
- Clients buying or refinancing rental properties
- People looking to scale their property portfolios
✅ Key Benefits
- No personal income or tax returns required
- Qualification based on rental cash flow
- Great for LLCs and seasoned investors
- Can close faster than traditional loans
⚠️ Things to Watch Out For
- Higher interest rates than traditional loans
- Minimum DSCR requirements vary by lender (typically 1.00 or higher)
- Typically requires 20–25% down payment
- Only available for investment properties
📁 Documents Commonly Required
- Lease agreements or rent rolls
- Property operating statements
- Appraisal with market rent analysis
- Business entity documents (if buying through an LLC)
Tip: Some lenders allow DSCRs under 1.0 with compensating factors like high credit, reserves, or a large down payment.