Written and reviewed by Jack Gladden, Senior Loan Officer, NMLS #1470164
Updated · 9-minute read · How these guides are written
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DSCR loans in brief
- What it is
- A mortgage for a rental property that qualifies on the property’s rent, not your personal income.
- Who it’s for
- Investors with heavy write-offs, several financed rentals, an LLC, or short-term rental income.
- The key number
- Monthly rent ÷ the monthly payment, taxes, insurance and dues. 1.0 or more is the usual target.
- Typical terms
- 20–25% down, credit from about 620–680, a few months of reserves, 30-year fixed or interest-only options.
- Documents
- Usually no tax returns or pay stubs. Lenders check credit, reserves, the property and its rent.
- Where
- Business-purpose loans I can arrange nationwide where permitted, for investment property only.
How a DSCR loan works.
A traditional investment loan asks whether you can afford another mortgage, so it reads your tax returns and debts. A DSCR loan asks whether the property pays for itself: if the rent covers the cost of owning it, the loan can work, whatever your returns show.
DSCR = monthly rent ÷ monthly housing cost
Housing cost means principal and interest, property taxes, insurance and any HOA dues, often shortened to PITIA.
Most lenders are comfortable; usually the best pricing.
Meets most lenders’ minimum, sometimes at a slightly higher rate.
Some programs go as low as 0.75, or use no ratio at all, with more down and more reserves.
Where the rent number comes from
- Long-term rental
- Usually the lower of the signed lease and the appraiser’s market-rent estimate. Some lenders accept a higher lease with a few months of rent receipts.
- Short-term rental
- Twelve months of booking history, the appraiser’s estimate, or market data such as AirDNA, often discounted for vacancy.
- 2 to 4 units
- Each unit’s rent counts toward the total.
A worked example.
An example single-family rental, with illustrative figures only; your numbers depend on the property, the loan and the lender. The four cost lines add up to the monthly housing cost (PITIA), and the ratio is the rent divided by that total.
| Monthly figure | Example A | Example B |
|---|---|---|
| Rent | $3,200 | $2,300 |
| Principal and interest | $1,850 | $1,850 |
| Property taxes | $350 | $350 |
| Insurance | $150 | $150 |
| HOA dues | $0 | $0 |
| Monthly housing cost (PITIA): the four lines above, added | $2,350 | $2,350 |
| DSCR: rent ÷ housing cost | 1.36 | 0.98 |
Example A is a strong file for most DSCR lenders. Example B falls just short: it would need $2,350 of rent to reach 1.00. A handful of lenders would still consider it with more down or more reserves, an interest-only payment could lift it above 1.0, and I’d also check whether a traditional loan fits better. The calculator below works it the other way too: enter the rent and costs, and it shows the payment and loan amount the rent supports at each ratio.
Want your property run properly?
Send me the address, the rent and the price or loan amount. I’ll show you how DSCR lenders are likely to see it.
What DSCR lenders typically look for.
Every lender sets its own rules, which is why comparing them matters. These are the most common ranges.
| Requirement | What’s typical |
|---|---|
| Ratio | 1.00–1.25 for most programs; some accept 0.75 or no ratio with more down. |
| Down payment | 20–25% on a purchase. Strong credit (around 740+) can bring it to about 15% with some lenders. |
| Credit | Minimums around 620–680; every step up in score usually improves the rate and the down payment. |
| Reserves | A few months to a year of housing costs, held in your or your LLC’s account for 30–60 days before closing. |
| Property | 1–4 units, condos, townhomes and short-term rentals. Five or more units move to commercial programs. Properties in litigation or needing a gut rehab usually don’t qualify. |
| Borrower | You personally or an LLC, usually with a personal guarantee. |
| Loan size | Minimums often around $75,000–$150,000. |
| Use | Investment property only. You can’t live in it. |
Not sure your file fits?
Tell me the property, your credit range and how you’ll hold it, and I’ll tell you which lenders are a realistic match.
Loan options, and why they change the ratio.
30-year fixed
The standard. The payment never changes.
Best forHolding long term
Adjustable rate
Fixed for the first few years, often 5 or 7, then adjusts; often starts lower.
Best forSelling or refinancing within a few years
Interest-only
Interest-only for the first years, often 10. The lower payment lifts the ratio, then rises when principal payments begin.
Best forThin cash flow or high-insurance markets
40-year term
A longer payoff lowers the monthly payment and improves the ratio.
Best forProperties just under 1.0
Some lenders can also put several rentals under one portfolio (blanket) loan.
Cash-out, refinancing and 1031 exchanges.
| Goal | How it usually works |
|---|---|
| Cash-out refinance | Borrow up to about 75% of the value. Many lenders want around six months of ownership first; some move sooner, including after a cash purchase. |
| Lower the rate or change the loan | A rate-and-term refinance; often allowed soon after you buy. |
| Leave hard money or a bridge loan | Once repairs are done and the unit rents, refinance into a long-term DSCR loan on the new value. |
| 1031 exchange | A DSCR loan can finance the replacement property. Identify it within 45 days and close within 180, through a qualified intermediary, buying in the same name you sold in. To defer all the tax, buy at equal or greater value and reinvest all the proceeds; any drop in debt has to be made up with added cash. Your CPA confirms the tax side. |
Short-term rentals.
- Income
- Booking history, an appraiser’s estimate or market data; lenders usually haircut it, so run your ratio conservatively.
- Down payment
- Often a little more than for a long-term rental; maximum loan-to-value around 70–75% is common.
- Local rules
- City licenses, permits and HOA rules can limit or ban nightly rentals. Check them before you buy; lenders and appraisers will.
If the numbers only work as a long-term rental, that’s the safer basis: a property that qualifies on long-term rent qualifies with almost every lender. For condo hotels, see condotel and short-term rental loans.
DSCR or a traditional investment loan?
I always look at a traditional investment loan first, because when it fits it usually costs less.
| DSCR loan | Traditional investment loan | |
|---|---|---|
| Qualifies on | The property’s rent | Your income and debts |
| Income documents | Usually none | Tax returns, W-2s or pay stubs |
| Borrow in an LLC | Usually yes | Usually personal name only |
| Financed properties | Usually no fixed cap | Capped (Fannie Mae allows up to 10) |
| Short-term rental income | Many lenders count it | Often not counted |
| Rate and costs | Usually higher | Usually lower |
| Prepayment penalty | Common | Rare |
Who a DSCR loan is for, and who it isn’t.
A good fit if
- Your returns show heavy write-offs, so a bank reads your income as too low
- You already have several financed rentals and hit a bank’s limit
- You want to close in an LLC
- Your income is from short-term rentals a bank won’t count
- You bought with cash and want your money back out
- You’re refinancing out of hard money once repairs are done
Look elsewhere if
- You plan to live in the propertyBetter: a primary-home loan such as conventional or FHA
- Your W-2 income easily qualifies youBetter: a traditional investment loan, usually cheaper
- The building has five or more unitsBetter: apartment and mixed-use loans
- The property needs major work firstBetter: rehab or bridge financing, then a DSCR refinance
The downsides, and how to manage them.
- A higher rate. The price of not documenting income. Comparing several DSCR lenders, and a traditional loan where it fits, keeps it down.
- Prepayment penalties. Most DSCR loans have one, from none to five years. A common pattern is 5% of the balance in year one, stepping down 1% a year. Choose a shorter term, or none, if you may sell or refinance early; it usually costs a little more in rate. In Ohio, state law limits penalties on one- and two-unit properties, and I’ll confirm how it applies to your loan.
- More money in. A bigger down payment than on a home you live in, plus reserves.
- The appraisal can set the rent. A low rent estimate lowers the ratio; a signed lease or comparable rents help.
- Payments that change. Adjustable and interest-only loans start lower and can rise later; plan for the higher payment.
How we get started.
Send me the property
Address or market, price or value, rent, and whether you’ll borrow personally or in an LLC.
I compare the options
A traditional investment loan first, then DSCR lenders on ratio, down payment, rate and prepayment terms.
Apply and appraise
With the lender that fits; the appraisal includes the rent estimate the ratio uses.
Underwriting and closing
Credit, reserves, the property and any LLC documents are reviewed, then you sign and the loan funds.
DSCR loans, answered plainly.
Do DSCR loans require 20% down?
Not always. 20–25% is common on a purchase; strong credit can bring it to about 15% with some lenders, and a ratio below 1.0 usually needs more. See also: DSCR calculator.
Is a DSCR loan hard to get?
Often easier than a traditional loan for investors, because there’s no income to document. The hard part is knowing which lender fits your property and credit, which is the part I do. See also: DSCR vs hard money loans.
What is the downside of a DSCR loan?
Usually a higher rate, a larger down payment, reserves, and often a prepayment penalty in the first few years. See the downsides.
Do DSCR loans have prepayment penalties?
Most do, typically for one to five years. You can usually choose a shorter penalty, or none, in exchange for a slightly higher rate. See also: DSCR calculator.
Can I use a DSCR loan for an Airbnb?
Yes. Many lenders count short-term rental income from booking history or market data, usually with a slightly larger down payment. See short-term rentals.
Can I use a DSCR loan for a 1031 exchange?
Yes. It’s a common way to finance the replacement property within the 45- and 180-day deadlines. See cash-out and 1031. See also: DSCR calculator.
Can I get a $100,000 DSCR loan?
Often, yes. Many lenders’ minimums are around $75,000–$150,000, so smaller loans narrow the field without ruling it out. See also: DSCR calculator.
Can I live in a property with a DSCR loan?
No. DSCR loans are for investment property only.
Can my LLC get a DSCR loan?
Yes. Most DSCR lenders lend to LLCs, usually with a personal guarantee and the company’s formation documents.
Which banks offer DSCR loans?
Few traditional banks do. They come mostly from specialist lenders, which is why comparing them through a broker helps. See also: DSCR calculator.
Are DSCR loans available outside California?
Yes. They’re business-purpose loans I can arrange nationwide where permitted, including Arizona, Florida and Ohio. See also: DSCR calculator.
Is it hard to get a loan for a rental property?
Not with the right program. Conventional loans want more down than for a home you live in and count only part of the rent; DSCR loans qualify on the property’s rent instead of your income.
What is the 2% rule for rentals?
A quick screen: monthly rent of at least 2% of the price. Few properties meet it in high-priced markets, and lenders don’t use it; they use the DSCR, the rent divided by the full housing cost.
What is the 7% rule for rental property?
It isn’t a lender rule. Investors use rules of thumb like this, often meaning yearly rent of at least 7% of the purchase price, as a quick screen. Lenders look at the DSCR instead: the rent against the full housing cost, which the DSCR calculator works out.
Condotel & short-term rental
Construction & bridge
Rehab & code cases
Foreign national & ITIN