A DSCR loan is a real estate investment loan that qualifies the borrower primarily based on the property’s income potential rather than traditional personal income documentation.
Instead of using paystubs, W-2s, or tax returns, lenders look at the property’s Debt Service Coverage Ratio, which compares the rental income to the monthly mortgage payment.
For example, if the property brings in $3,000 per month in rental income and the total monthly mortgage payment (PITI) is $3,000, the DSCR is 1.0. This means the property is generating enough income to cover its monthly payment.
DSCR loans can be a strong option for real estate investors, self-employed borrowers, or buyers looking to finance rental properties with a more flexible income-qualification approach.
Common uses include:
- Rental properties
- Short-term rentals
- Investment purchases
- Cash-out refinances on investment properties
- Expanding a real estate portfolio
Loan terms, down payment, credit requirements, and rental income calculations can vary by lender and property type.
