What Is a DSCR Loan?
A DSCR (Debt Service Coverage Ratio) loan is a type of investment property loan that qualifies you based on the rental income of the property — not your personal income, tax returns, or employment history. This makes it ideal for self-employed investors, retirees, and anyone who has maxed out their conventional loan limit (typically 4–10 loans).
How DSCR Is Calculated
The Debt Service Coverage Ratio is calculated as:
DSCR = Monthly Gross Rental Income ÷ Monthly Mortgage Payment (PITIA)
Where PITIA = Principal + Interest + Taxes + Insurance + HOA (if applicable).
Most DSCR lenders require a minimum DSCR of 1.0–1.25. A DSCR of 1.25 means the property generates 25% more income than needed to cover the mortgage payment.
Example
Property rents for $1,800/month. Monthly mortgage (PITIA) is $1,400/month.
DSCR = $1,800 ÷ $1,400 = 1.29 — qualifies with most lenders.
DSCR Loan Terms (2026)
- Interest rates: 7.5–9.0% (higher than conventional due to no income verification)
- Down payment: 20–25% for SFR; 25–30% for multifamily
- Loan terms: 30-year fixed, 5/1 ARM, or interest-only options
- Credit score: Minimum 620–680 depending on lender
- Property types: SFR, 2–4 unit, condos, short-term rentals
- No limit on number of properties
When DSCR Loans Make Sense
- You've hit the conventional loan limit (4–10 properties)
- You're self-employed and your tax returns show low income
- You want to close faster without the documentation burden of conventional loans
- You're doing a BRRRR refinance and need a long-term hold loan
DSCR vs. Conventional Loans
| Factor | DSCR Loan | Conventional Loan |
|---|---|---|
| Qualification basis | Property income | Personal income (DTI) |
| Tax returns required | No | Yes (2 years) |
| Property limit | Unlimited | 4–10 properties |
| Rate | 7.5–9.0% | 6.5–7.5% |
| Down payment | 20–25% | 15–25% |
| Close time | 21–30 days | 30–45 days |
The Bottom Line
DSCR loans are the primary scaling vehicle for serious rental investors. Once you've built a portfolio of 4+ properties, conventional financing becomes difficult or impossible. DSCR loans remove the personal income constraint and let you scale based on the performance of your portfolio. The higher rates are the trade-off — which is why buying in strong cash flow markets matters so much.