A DSCR loan is a rental property loan that's qualified mainly on the property's cash flow instead of your personal income. The lender divides the property's monthly rent by its full monthly payment — principal, interest, taxes, insurance, and HOA dues. That number is the debt service coverage ratio, or DSCR. If it's high enough, the property qualifies; your W-2s and tax returns mostly stay in the drawer.
That's the short version. The rest of this guide covers how the calculation actually works, what lenders count as "rent," what ratio you need, and what to do when your numbers come up short.
Why DSCR loans exist
A conventional mortgage is built around you: your income, your debts, your debt-to-income ratio. That works fine for a primary residence and a rental or two. It starts to break for investors in three common situations:
- You're self-employed. Your tax returns show what's left after every legitimate write-off, which can make a profitable business look like a modest one on paper.
- You own several rentals. Every new mortgage adds to your personal debt load, and eventually the math says no — even when every property pays for itself.
- You hold property in an LLC. Many conventional loans are designed for individual borrowers, not entities.
A DSCR loan flips the question. Instead of "can you afford this payment?" the lender asks "does the property cover this payment?" For an investor building a portfolio, that's usually the more honest question anyway.
How DSCR is calculated
The formula is simple:
DSCR = monthly rent ÷ monthly PITIA
PITIA is the full monthly housing payment:
- Principal and Interest on the loan
- Taxes (annual property tax ÷ 12)
- Insurance (annual premium ÷ 12)
- Association dues (HOA), if any
A worked example
Say a single-family rental leases for $2,100 a month. You're borrowing on a 30-year loan, and the principal and interest come to $1,500. Property taxes are $3,000 a year ($250 a month), insurance is $1,800 a year ($150 a month), and there's no HOA.
| Monthly | |
|---|---|
| Principal & interest | $1,500 |
| Taxes | $250 |
| Insurance | $150 |
| HOA | $0 |
| PITIA | $1,900 |
DSCR = $2,100 ÷ $1,900 = 1.11x. The rent covers the full payment with about 11% to spare.
What the ratio means
- Above 1.00x: the rent covers the payment with something left over.
- Exactly 1.00x: the rent covers the payment and nothing else.
- Below 1.00x: you're topping up the payment out of pocket every month.
Our DSCR rental loan program requires a 1.05x minimum. In plain terms, the rent needs to cover the payment with a little room to spare. A higher ratio generally means better pricing, because it means a bigger cushion if the property sits vacant for a month or the water heater dies.
Want to skip the arithmetic? The DSCR calculator does it for you.
What counts as "rent"
This is where investors and lenders sometimes disagree. A few general rules:
- If the property is leased, the lender looks at the lease. An above-market lease to a friend won't carry much weight.
- If it's vacant or about to be, the appraiser estimates market rent based on comparable rentals nearby.
- When both exist, lenders commonly use the lower of the two. Plan on the conservative number.
- Short-term rental income is treated differently from lender to lender, if it's accepted at all. Ask before you assume.
The practical takeaway: run your numbers on the rent the appraiser is likely to support, not the rent you're hoping for.
What else lenders look at
"Qualified on the property" doesn't mean "no questions asked." A DSCR loan is still a real loan, and the lender still wants to know who's on the other side of it.
- Credit. Our DSCR program requires a 660 minimum FICO. Stronger credit gets you better pricing.
- Leverage. Purchases and rate-and-term refinances go up to 80% loan-to-value; cash-out refinances go up to 75%.
- Loan size. Our program runs $75K–$2M.
- Your entity. You'll borrow through an LLC or corporation, with a personal guarantee. (More on that in why lenders require an LLC.)
- Cash reserves. Enough liquidity to cover a vacancy or a big repair without missing a payment.
- The property. It has to be business-purpose, non-owner-occupied investment property — a rental, not a home you'll live in.
What to do when your DSCR comes up short
If the ratio lands under the minimum, there are really only three levers, and they all work on one side of the fraction or the other.
1. Shrink the loan
A smaller loan means a smaller principal and interest payment, which raises the ratio. On a purchase, that's a bigger down payment. On a refinance, it's taking out less cash. This is the most common fix, and the DSCR calculator will show you the largest loan the rent supports.
2. Increase the rent
If the property is under-rented, a new lease at market rent can fix the ratio on its own. If it's not yet rented, a lease signed before closing gives the lender something concrete to underwrite. Just don't expect a lender to credit rent the market won't support.
3. Lower the costs
Taxes are what they are, but insurance quotes vary. Shopping your policy is worth an afternoon. HOA dues, unfortunately, aren't negotiable.
What doesn't work: plugging in optimistic numbers and hoping the appraiser agrees. They usually don't, and you find out at the worst possible time.
DSCR loans and the BRRRR strategy
DSCR loans are the "refinance" in buy-rehab-rent-refinance-repeat. You buy and renovate with short-term money, lease the property, then refinance into a long-term DSCR loan based on the new value and the new rent. If the numbers line up, the refinance pays off the short-term loan and returns some or all of your cash.
The trap is assuming the refinance will work without checking the rent first. Before you buy, run the DSCR on the after-rehab rent and a realistic refinance amount. Our guide to BRRRR financing walks through every step, and the BRRRR calculator models both loans at once.
Is a DSCR loan right for you?
A DSCR loan is usually a good fit if:
- you're buying or refinancing a 1–4 unit rental you won't live in,
- your tax returns undersell your income, or you've maxed out conventional financing,
- the property's rent clearly covers its payment, and
- you're comfortable borrowing through an LLC or corporation.
It's probably not the right fit if the property needs major work before it can be rented (look at a fix and flip loan or a bridge loan first), or if you plan to live there.
If you're on the fence, send us the deal. We'll run the numbers and tell you straight whether a DSCR loan makes sense — and if it doesn't, what would.
Quick reference
- DSCR = monthly rent ÷ monthly PITIA.
- Our minimum: 1.05x.
- Rent used: usually the lower of the lease and the appraiser's market rent.
- Credit: 660 minimum FICO for our DSCR program.
- Leverage: up to 80% LTV; cash-out up to 75%.
- Borrower: an LLC or corporation, with a personal guarantee.
Business-purpose, non-owner-occupied only; entity borrowers (LLC or corporation) required; full recourse. Rates shown are the lowest offered and depend on borrower FICO, experience, and the deal. Points and fees vary. *Stabilized Bridge offers a no-DSCR option for properties listed for sale and a 1.10x exit-DSCR option for rent-ready properties. Not available in every state. Nothing here is a commitment to lend or an offer of specific terms; all loans subject to underwriting and approval.