If you’ve been exploring financing options for investment properties, you may have come across the term DSCR loan. These loans are designed with real estate investors in mind, and they work a little differently from traditional mortgages. Here’s what you need to know.
What Does DSCR Mean?
DSCR stands for Debt Service Coverage Ratio. It’s a way lenders measure whether the income from an investment property can cover the loan payments.
The formula is:
DSCR = Net Operating Income ÷ Debt Payments
- A DSCR of 1.0 means the property brings in just enough income to cover the loan.
- A DSCR above 1.0 means the property makes more income than the loan costs, which lenders like to see.
- A DSCR below 1.0 means the property doesn’t generate enough income to cover payments, which usually makes it harder to qualify.
How a DSCR Loan Works
Unlike a standard mortgage, a DSCR loan doesn’t rely on your personal income, W-2s, or tax returns. Instead, approval is based primarily on the property’s ability to pay for itself.
This makes DSCR loans popular with:
- Real estate investors building rental portfolios
- Self-employed borrowers who may not have traditional proof of income
- Investors looking to buy multiple properties quickly
Benefits of a DSCR Loan
- No personal income verification – Qualification is property-based, not job-based.
- Scalability – Easier to finance multiple rental properties.
- Flexible property types – Can often be used for single-family rentals, condos, townhomes, or even small multifamily buildings.
- Faster approval process – With fewer personal documents required, closings can move more quickly.
Things to Consider
- Higher down payments – DSCR loans may require more money down compared to traditional mortgages.
- Rates and terms vary – Because they’re geared toward investors, interest rates may be slightly higher.
- Property performance matters – The stronger the rental income, the easier it is to qualify and get favorable terms.
Is a DSCR Loan Right for You?
If you’re looking to expand your real estate portfolio and prefer financing that’s based on property income rather than personal income, a DSCR loan could be the right fit. It’s worth discussing with a lender to see how your property’s numbers stack up.
A DSCR loan is a powerful tool for investors who want to leverage rental income to grow their real estate business—without being limited by traditional income documentation.
By: Jon Iacono