Tired of hearing “no” from banks after a few rental properties? Or hitting a wall because your tax returns don’t show enough income?
DSCR loans are the secret weapon smart real estate investors use to scale their rental portfolios—without W-2s, pay stubs, or tax returns.
Whether you’re new to investing or already holding multiple doors, this guide will walk you through the basics of DSCR loans, how they work, and why they’re one of the most powerful tools for building long-term wealth through real estate.
What Is a DSCR Loan?
A DSCR loan (Debt Service Coverage Ratio loan) is a type of non-QM mortgage specifically designed for real estate investors.
Instead of qualifying based on your personal income, lenders evaluate whether the property’s rental income is enough to cover its mortgage payment. That’s the DSCR ratio.
How DSCR Is Calculated
🧮 DSCR Formula:
DSCR = Net Operating Income (NOI) ÷ Annual Debt Service
Example:
- NOI: $48,000/year
- Annual mortgage payments: $40,000
- DSCR = 48,000 ÷ 40,000 = 1.20
A DSCR of 1.20 means the property earns 20% more than the debt payments require—a strong sign of cash flow and low risk.
Why Investors Love DSCR Loans
| Advantage | Why It Matters |
| ✅ No income docs required | Skip W-2s, tax returns, and pay stubs |
| ✅ Property qualifies—not you | Focuses on the rental’s cash flow |
| ✅ Works with LLC ownership | Ideal for investors holding assets in entities |
| ✅ Unlimited properties | No cap on financed properties like Fannie/Freddie |
| ✅ Fast closings | Approvals in 2–3 weeks with minimal red tape |
Who DSCR Loans Are Best For
- Self-employed investors
- Full-time landlords or Airbnb hosts
- LLC or S-Corp real estate operators
- BRRRR investors refinancing post-rehab
- Those scaling past conventional loan limits
If your tax returns don’t reflect your true income—or you’re done dealing with DTI (debt-to-income ratios)—DSCR loans were built for you.
Typical DSCR Loan Terms
| Feature | Typical Range |
| Minimum DSCR | 1.20–1.25 |
| Max LTV (Purchase) | 75–80% |
| Max LTV (Cash-Out) | 70–75% |
| Credit Score | 660+ (700+ preferred) |
| Loan Amount | $100K – $5M+ |
| Loan Term | 30-year fixed, 5/6 ARM, IO options |
| Ownership Type | LLC, LP, Corporation, Individual |
| Property Types | SFR, 2–4 units, STRs, small multifamily |
What Properties Qualify for DSCR Loans?
DSCR loans are available for income-producing properties only, such as:
- Single-family rentals (SFR)
- Duplexes, triplexes, fourplexes
- Small multifamily (5–16 units)
- Condos or townhomes
- Short-term rentals (Airbnb/Vrbo, if allowed)
- Mixed-use (if residential majority)
📌 Owner-occupied homes don’t qualify—DSCR loans are strictly for investments.
What Lenders Look For in DSCR Loans
- Rent roll or lease agreements (or market rent estimates)
- Appraisal with 1007 rent schedule
- DSCR at or above 1.20
- Clean title and property condition
- Credit score (660+ recommended)
- Cash reserves (6–12 months PITIA)
Many lenders also allow Airbnb income or STR performance data to support cash flow.
Real-World Example: Using a DSCR Loan to Scale
Investor: Jordan owns 3 long-term rentals in an LLC but is maxed out with conventional lenders. He finds a 4th property that rents for $2,800/month.
- Annual NOI: $32,400
- New loan debt: $26,000/year
- DSCR: 1.25
- Loan approved: 75% LTV, 30-year fixed
- No tax returns submitted
Jordan now closes in 3 weeks—and uses the same lender to fund 2 more properties by year-end.
Pros and Cons of DSCR Loans
✅ Pros:
- No personal income verification
- LLC- and entity-friendly
- Unlimited financed properties
- Short-term rental approval
- Great for BRRRR exit refis
❌ Cons:
- Higher rates than conventional
- Minimum DSCR required (1.20–1.25)
- Prepayment penalties (often 3–5 years)
- Down payments typically 20–25%
DSCR Loan vs. Conventional Loan
| Feature | DSCR Loan | Conventional Loan |
| Income Requirement | Based on property NOI | Based on borrower income + DTI |
| Property Type | Investment only | Owner-occupied or investment |
| Ownership Type | LLC, LP, individual | Individual only |
| Max Properties | Unlimited | Typically capped at 10 |
| Docs Required | Lease, appraisal, credit | Full income docs, tax returns, DTI |
| Approval Speed | 2–4 weeks | 30–45 days |
Final Thoughts
DSCR loans are designed for real estate investors, not homeowners. They give you the power to:
- Qualify based on property performance
- Hold assets in an LLC
- Scale without W-2s, income caps, or DTI headaches
- Refinance BRRRR deals without seasoning restrictions (in many cases)
Whether you’re buying your first rental or your fifteenth, DSCR loans help you build a cash-flowing portfolio with freedom and flexibility.
Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
