Debt-Service Coverage Ratio (DSCR)

What Exactly Are DSCR Loans?

Think of DSCR loans as mortgages tailored for investment properties—usually 1 to 4 units, but sometimes up to 10. These loans are often bundled into securities, either standalone or mixed with other non-traditional mortgages (those that don’t meet conventional standards from Fannie Mae or Freddie Mac). The borrower—or a guarantor like an LLC—is fully responsible for repayment. What makes DSCR loans unique is that approval hinges on the income the property generates, not the investor’s personal income.

While commercial real estate loans also factor in a property’s ability to cover its debts, DSCR loans are a specific category tied to investment properties that end up in those securitized pools.

How Do You Figure Out the DSCR for These Loans?

The calculation is pretty straightforward but varies from commercial real estate norms. For DSCR loans on residential rentals, the formula is: rental income ÷ PITIA (Principal, Interest, Taxes, Insurance, and Association fees). In contrast, commercial loans use Net Operating Income ÷ total debt service, factoring in more detailed expenses like repairs, utilities, vacancies, and management.

Because DSCR loans don’t account for as many expenses, the resulting ratio often looks higher. While it’s smart for investors to stay conservative and plan for additional costs, the simpler qualification process makes DSCR loans appealing.

Do All DSCR Lenders Play by the Same Rules?

Not at all—and that’s actually a big benefit. Unlike conventional lenders tied to strict agency guidelines, DSCR lenders often set their own rules. That means more flexibility in qualifying borrowers and tailoring programs to different investor profiles.

Most offer similar rates and terms, with around 90% overlap in core requirements. But the differences—like support for short-term rentals or BRRRR strategies—can be game-changers for the right investor.

What’s the Smallest Loan You Can Get With a DSCR Loan?

It depends on the lender. Minimum loan amounts usually range from $75,000 to $150,000, though some will go as low as $55,000.

What Credit Score Do You Need for a DSCR Loan?

Requirements vary, but most lenders want a minimum score between 620 and 680. More conservative lenders stick to the higher end, while others take a more flexible approach.

Can You Live in a Property You Buy With a DSCR Loan?

Nope. DSCR loans are strictly for non-owner-occupied properties. You’ll need to sign a legal agreement confirming you won’t live in the property—even in just one unit of a multi-family building.

What About Short-Term Rentals?

Short-term and vacation rentals can be financed with DSCR loans, but you’re still not allowed to live in them. You’ll sign the same legal documents confirming non-occupancy.

That said, some lenders allow brief personal use—up to two weeks per year. If you want more personal use, a second home loan may be a better fit.

Can Someone Investing for the First Time Get a DSCR Loan?

Yes, many DSCR lenders are open to first-time investors. Some may adjust requirements slightly—like lowering the max loan-to-value or raising the minimum credit score—but others treat beginners just like seasoned pros if the financials make sense.

What’s the Smallest Down Payment You’ll See on a DSCR Loan?

Most lenders require at least 20% down, though a few go as low as 15%.

Is There a Limit to How Many DSCR Loans You Can Have?

Nope. DSCR loans aren’t capped like traditional mortgages. Since they’re evaluated based on the property’s income and your credit—not your personal income or total portfolio—you can keep adding properties as long as each one qualifies.

Does a Property Need to Be Rented Out to Qualify for a DSCR Loan?

For refinances, properties typically need to be tenant-occupied or have a rental history (including short- or mid-term rentals). Some lenders allow one or two vacant units if they’re in rent-ready condition.

For purchases, properties can be vacant—as long as they’re turnkey and ready to rent without major repairs.

What Are Some Common Reasons a Rental Property Might Not Qualify for a DSCR Loan?

Certain property types often don’t qualify because they’re harder to manage or sell after foreclosure. These might include specialized housing, properties with unusual layouts or zoning, or anything that requires niche knowledge to operate profitably.

Summary

DSCR (Debt Service Coverage Ratio) loans are investment property loans that qualify based on the property's income—not the borrower’s personal income. They're ideal for investors, especially those with multiple properties or unconventional finances. Loan approval depends on the property's rental income covering the monthly costs (PITIA). You can’t live in the property, but first-time investors and short-term rentals are often allowed. Terms and guidelines vary by lender, offering flexibility in credit score, down payment, and loan limits.