DSCR Loan: Qualifying on the Property, Not Your Income
A loan based on the property's rent, not your personal income. Good for investors who do not want to show pay stubs. The rate is usually a bit higher than a conventional loan.
Prop Hound checks new listings in your market each night against your numbers. Start your 7-day free trial.
A DSCR loan is an investment-property mortgage approved on the basis of the property's rental income rather than your personal income. No W-2s, no tax returns, no debt-to-income calculation on you. The lender looks at whether the rent covers the payment.
How approval works
The lender calculates DSCR (rental income divided by the loan payment including taxes and insurance) and needs it above a threshold, typically 1.0 to 1.25.
DSCR = Gross rental income / (Principal + interest + taxes + insurance + HOA)
At 1.25, the rent must be 25% more than the full payment.
Typical terms
| Term | Typical range |
|---|---|
| Down payment | 20% – 25% |
| Interest rate | 1% – 2% above a conventional investment loan |
| Credit score minimum | 620 – 680 |
| Reserves | 3 – 6 months of payments |
| Prepayment penalty | Common, often 3 – 5 years |
| Property types | 1 – 4 units, sometimes 5 – 10 |
Who it suits
- Self-employed buyers whose tax returns show heavily deducted income
- Investors at the conventional limit. Fannie and Freddie cap you at ten financed properties; DSCR lenders generally do not.
- Non-US buyers. Overlaps heavily with foreign national loans, relevant for Canadians buying US property.
- Anyone wanting to keep personal and property finances separate, often borrowing in an LLC
What it costs
The rate premium is the main one. On a US$120,000 loan, 1.5% extra is roughly US$120 a month, enough to turn thin cash flow negative, so run the numbers at the rate you will actually get rather than a conventional one.
Watch the prepayment penalty too. A 5-year step-down penalty is a real constraint if you intend to refinance, which matters particularly for a BRRRR strategy.
DSCR loan vs DSCR ratio
Two different things with the same name. The ratio is a measurement anyone can calculate on any property. The loan is a product that uses that ratio as its approval test. A conventional loan also cares about the ratio, but qualifies you on your income as well.
Related reading
DSCR loans explained covers the mechanics in more depth, and the financing options rundown compares loan types side by side. Check whether a given property clears a lender's threshold in the calculator.
Longer reads on this
Related terms
Run the number on a real listing
The free calculator works out cash-on-cash return, cap rate and DSCR from a price and a rent.