What Is DSCR Loan?
DSCR Loan: An investment property loan qualified by the property's rent instead of your personal income.
Also called: debt service coverage ratio loan
A DSCR loan (debt service coverage ratio loan) is a mortgage for rental property that qualifies based on whether the property's rent covers its payment, not on your tax returns or pay stubs.
How DSCR is calculated
DSCR = monthly rent ÷ monthly PITIA (principal, interest, taxes, insurance and association dues).
A home renting for $2,400 with a $2,000 PITIA has a DSCR of 1.2. Many lenders want 1.0 or higher; some allow lower ratios with a larger down payment or higher rate.
Typical terms
- Down payment: usually 20% to 25%
- Credit: commonly 620 to 660 minimum, with better pricing above 700
- Rent: from a current lease or the appraiser's rent schedule
- Reserves: often several months of payments
- Borrower: an individual or an LLC
- Prepayment penalty: common, often 1 to 5 years
Who it fits
Investors who are self-employed, own several properties, or write off enough expenses that their tax returns understate their income.
Good to know
DSCR loans are business-purpose loans for investment property only; you can't live in the home. Unbeatable's DSCR program is available on the Investor plan.