DSCR Loans 101: What Real Estate Investors Need to Know

If you’re growing a real estate portfolio—or struggling to qualify for conventional financing—a DSCR loan might be the game-changer you’ve been looking for.

Designed specifically for investors, DSCR loans focus on the cash flow of the property, not your personal income. That makes them ideal for landlords, LLC owners, short-term rental hosts, and self-employed borrowers looking to scale without the usual red tape.

In this guide, we’ll break down how DSCR loans work, who they’re for, how to qualify, and how they compare to traditional loan options in today’s market.

What Is a DSCR Loan?

A DSCR loan is a type of non-QM (non-qualified mortgage) designed for investment properties. Instead of requiring tax returns, pay stubs, or a low debt-to-income (DTI) ratio, lenders evaluate whether the property itself can generate enough income to cover the loan payments.

DSCR stands for Debt Service Coverage Ratio, which measures the property’s net operating income (NOI) against the annual debt obligation.

How DSCR Is Calculated

DSCR = Net Operating Income ÷ Annual Debt Service

Example:

• Property NOI = $60,000/year
  
• Mortgage payments (principal + interest) = $48,000/year
  
• DSCR = 1.25
  

This means the property earns 25% more than is needed to cover the loan. Most lenders require a minimum DSCR of 1.20 to 1.25 to approve a loan.

Who Are DSCR Loans Best For?

DSCR loans are ideal for real estate investors who:

• Are self-employed or full-time landlords
  
• Own properties in an LLC or entity structure
  
• Use tax strategies that reduce reportable income
  
• Want to avoid traditional income verification
  
• Need fast, scalable financing for multiple properties
  
• Invest in long-term, mid-term, or short-term rentals
  

DSCR loans are not for owner-occupied homes—they’re strictly for non-owner-occupied investment properties.

DSCR Loan Highlights (At a Glance)

What Property Types Qualify?

Most DSCR lenders accept:

• Single-family rentals (SFRs)
  
• Duplexes, triplexes, and fourplexes
  
• Small multifamily (5–10 units)
  
• Condos and townhomes
  
• Non-warrantable condos
  
• Short-term rentals (Airbnb, Vrbo, etc.)
  
• Mixed-use buildings (majority residential)
  

✅ Properties must be rented or rent-ready, and the expected income must meet the lender’s DSCR threshold.

How to Qualify for a DSCR Loan

Rather than W-2s or DTI ratios, you’ll need:

1. Property Appraisal – Includes a 1007 rent schedule or STR income estimate
   
2. Credit Score – Minimum 660 (700+ preferred for best rates)
   
3. Proof of Reserves – 3–12 months of PITIA (Principal, Interest, Taxes, Insurance, HOA)
   
4. Entity Documentation – If held in an LLC, you’ll need your operating agreement and EIN
   
5. Lease Agreements or STR Income Reports – Airbnb, Vrbo, or property manager statements
   

How DSCR Loans Compare to Traditional Loans

Pros and Cons of DSCR Loans

✅ Pros

• No personal income documentation
  
• LLC and entity ownership allowed
  
• Unlimited properties financed
  
• Fast closings (2–4 weeks)
  
• Ideal for short-term rentals and BRRRR strategy
  
• Refinance and cash-out options available
  

❌ Cons

• Slightly higher interest rates
  
• Prepayment penalties apply
  
• Property must cash flow (DSCR ≥ 1.20)
  
• Limited options for low-credit borrowers
  

Example Scenario: Investor with LLC-Owned Airbnb

• Property: 3-bed STR in Scottsdale, AZ
  
• Purchase price: $500,000
  
• Projected NOI: $48,000/year
  
• Loan: $375,000 @ 7.25%
  
• Annual debt service: $36,000
  
• DSCR = 1.33 → ✅ Qualified
  

The investor closes in 21 days under their LLC without using personal tax returns.

Final Thoughts

If you’re serious about building a real estate portfolio and want flexible, income-based financing, DSCR loans offer speed, scalability, and simplicity that traditional lenders can’t match.

Whether you’re growing an STR portfolio, refinancing a cash-flowing rental, or executing a BRRRR strategy, DSCR loans let you focus on what really matters—property performance.