DSCR
Investment property financing qualified on the property's rental income rather than your personal income.
How it works
A DSCR loan qualifies on the property rather than on you. The lender compares the rental income the property generates against the payment on the proposed loan, and the resulting ratio is the qualifying test. Personal income, employment, and debt to income ratio generally do not enter into it.
For an investor, this changes the constraint entirely. Conventional financing limits how many properties you can carry based on your personal debt load. DSCR financing does not have that ceiling in the same way, which is why it is the standard tool for building a portfolio past the first few properties.
The trade is cost and structure. These are non-QM loans, priced above conventional, and they are underwritten as business purpose loans, which means they cannot be used for a property you intend to occupy.
Who it fits
This program is usually the right tool when:
- Investors purchasing or refinancing rental property
- Borrowers who have reached the property count limit on conventional financing
- Self employed investors who would rather not document personal income at all
- Purchases held in an LLC or other entity
What to watch for
The parts nobody leads with.
- Business purpose only. A DSCR loan cannot be used to finance a property you will live in.
- The coverage ratio threshold varies by lender, and so does the treatment of short term rental income. Both are worth shopping.
- Prepayment penalties are common on these loans. Read that term carefully if you might sell or refinance inside the penalty period.
Common questions
What debt service coverage ratio do lenders require?
Requirements vary by lender and by loan scenario. Many programs look for the rental income to at least cover the payment, and some allow ratios below that with pricing adjustments or additional reserves. Because the threshold and the pricing tiers differ between lenders, the same property can produce meaningfully different outcomes depending on where the file is placed.
Can short term rental income be used?
Some DSCR lenders accept documented short term rental income, often using a market data report rather than a long term lease. Others will only use long term market rent regardless of how the property is operated. This is one of the larger points of variation between lenders on these programs.
Other programs