A DSCR loan is a type of investment property loan where the lender looks closely at whether the property's rental income can cover its monthly debt payment. Instead of relying mainly on your personal income, many DSCR programs focus on the property's cash flow — measured by the debt service coverage ratio. Requirements vary by lender.
Who DSCR loans are designed for
- Investors buying or refinancing long-term rental properties.
- Self-employed investors whose tax returns may not reflect their full income.
- Investors growing a portfolio who want financing based on each property's income.
- Investors who own or buy through an entity such as an LLC (where the lender allows it).
DSCR loans are generally business-purpose loans for investment properties, not owner-occupied homes.
How debt service coverage ratio is calculated
DSCR = Monthly rental income ÷ Monthly debt payment
The monthly payment often includes principal, interest, taxes, insurance, and HOA dues (sometimes called PITIA). Some lenders calculate it differently — for example using net operating income — so ask each lender how they measure it.
A ratio above 1.0 means the rent is higher than the payment. Below 1.0 means the rent doesn't fully cover it.
Calculate Your DSCR with our free DSCR calculator.
Illustrative DSCR example
Hypothetical numbers for illustration only — not a quote, rate, or lender requirement, and not terms offered by All Ways Capital LLC. Each lender calculates DSCR in its own way and sets its own underwriting requirements.
- Monthly market rent (assumed)
- $2,400
- Principal & interest (assumed)
- $1,450
- Property taxes (assumed)
- $300
- Insurance (assumed)
- $125
- HOA dues (assumed)
- $25
- Total monthly payment (PITIA)
- $1,900
- DSCR ($2,400 ÷ $1,900)
- 1.26
Run your own numbers — including DSCR, cash flow, and cap rate — in the Rental Property Calculator.
Common property and borrower considerations
Lenders may consider factors such as:
- The property's current lease or estimated market rent.
- Property type, condition, and location.
- Appraised value and the size of your down payment.
- Credit history and cash reserves.
- Prior investing experience and how the property is owned (personally or through an entity).
Each lender sets its own criteria. Requirements vary by lender and program.
Potential advantages and limitations
Potential advantages
- Qualification may focus on property income rather than personal income.
- Can suit self-employed investors and growing portfolios.
- Some lenders allow closing in an LLC.
Potential limitations
- Costs may be higher than some conventional loans.
- Some loans include prepayment penalties.
- Larger down payments or reserves may be required.
- Not intended for owner-occupied homes.
DSCR loans vs. conventional investment property loans
| DSCR loan | Conventional investment loan | |
|---|---|---|
| Main focus | Property's rental income | Borrower's personal income and debts |
| Income documents | Often lighter on personal income documents | Typically tax returns, pay stubs, W-2s |
| Ownership | Entity ownership may be allowed | Usually personal name |
| Cost | May be higher; varies by lender | Varies by lender and market |
The right choice depends on your situation. Compare full written terms from each lender.
How to explore DSCR financing
- Estimate rent, taxes, insurance, and expenses in the Rental Property Calculator.
- Read the DSCR loans guide and rental cash flow guide.
- Gather your lease or rent comps, property details, and reserve information.
- Request a free, no-obligation quote from our financing partner below.
Explore DSCR financing with All Ways Capital
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DSCR loan FAQs
What does DSCR stand for?
Do DSCR loans use my personal income?
What is a good DSCR?
A DSCR of 1.0 means a property's qualifying monthly rental income roughly equals its qualifying monthly payment. Above 1.0 the rent covers the payment with room to spare; below 1.0 it does not. Minimum qualifying ratios vary by lender and loan program, so the levels below describe how ratios are commonly read — they are not any lender's actual requirements.
- Below 1.0 — the payment is larger than the rent, so rent alone does not cover the loan. Many programs are described as wanting at least 1.0, and some lenders may decline or ask for extra reserves.
- 1.0 — the qualifying rental income equals the qualifying payment used in the lender's calculation. That is not the same as breaking even: a property at 1.0 can still lose money once vacancies, repairs, management, and other operating costs are counted.
- 1.25 — the rent runs about 25% above the payment. A DSCR of 1.25 is a common reference point when discussing DSCR loans, but minimum requirements vary by lender and loan program.
- 1.5 — a stronger cushion, with rent about half again as high as the payment. Some lenders say higher ratios can mean better terms; each one sets its own.
- 1.7 and above — a large buffer, often described as the most favorable tier. Thresholds and pricing are still set by each lender and program.
Worked example: $2,500 in qualifying monthly rental income ÷ $2,000 in qualifying monthly payment = a DSCR of 1.25.
Run your own numbers with the Free DSCR Loan Calculator.
Can I use a DSCR loan for a primary residence?
How is rent determined for a DSCR loan?
Does Get REI Loan make DSCR loans?
Are DSCR loans available in every state?
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