What Is a DSCR Loan?

A DSCR loan is a type of commercial real estate financing designed specifically for real estate investors. Instead of relying on a borrower’s personal income, tax returns, or employment history, DSCR loans focus on how well the property itself generates income.

DSCR stands for Debt Service Coverage Ratio, which measures whether a property’s rental income is sufficient to cover its monthly loan payment. Because approval is based on property performance rather than personal income, DSCR loans are commonly used by:

• Rental property investors

• Portfolio landlords

• Short-term rental owners

• Investors purchasing through LLCs or business entities

DSCR loans are often used to purchase or refinance income-producing real estate without the documentation required for traditional commercial or residential loans.

Questions Call (888)214-5151

How DSCR Loans Work

DSCR loans evaluate the relationship between a property’s income and its debt obligation.

The basic formula:

DSCR = Net Operating Income ÷ Total Debt Service

• Net Operating Income (NOI): Rental income minus operating expenses

• Debt Service: Monthly principal, interest, taxes, insurance, and HOA (if applicable)

If the property generates enough income to cover the loan payment, the loan may qualify — even if the borrower has complex income or is self-employed.

Understanding DSCR Ratios (What Lenders Look For)

Different lenders allow different DSCR thresholds, but common ranges include:

• DSCR 1.25 – Strong cash flow, best pricing and leverage

• DSCR 1.00 – 1.24 – Income covers payment, standard approvals

• DSCR 0.75 – 0.99 – May qualify with higher down payment or rate

• Below 0.75 – Typically not eligible

A DSCR of 1.00 means the property breaks even. Anything above that indicates positive cash flow.

Property Types Eligible for DSCR Loans

DSCR loans can be used for a wide range of income-producing properties, including:

• Single-family rental homes

• Small multifamily properties

• Mixed-use buildings

• Condos and townhomes (non-owner occupied)

• Portfolio rental properties

Long-Term vs Short-Term Rentals

Many DSCR programs allow both:

• Long-term rentals (LTRs) using lease-based income

• Short-term rentals (STRs) using market or historical rental data

Eligibility depends on property type, location, and lender guidelines.

Purchase, Refinance, and Cash-Out Options

DSCR loans can be used for multiple investment strategies:

Purchase

• Acquire new rental or investment properties

• Competitive leverage based on cash flow

Rate & Term Refinance

• Improve cash flow

• Consolidate existing financing

Cash-Out Refinance

• Access equity for reinvestment

• Expand portfolios without selling assets

Loan amounts typically range from $150,000 to several million dollars, depending on property and program.

Ownership Structure: LLCs and Entities

One of the major advantages of DSCR loans is flexibility in ownership:

• Individual ownership

• Single-member LLCs

• Multi-member LLCs

• Business entities

Personal income documentation is generally not required, even when borrowing through an entity.

Typical DSCR Loan Terms

While exact terms vary by lender, common features include:

• 30-year or extended amortizations

• Fixed-rate or adjustable options

• Interest-only periods (on select programs)

• Loan-to-value (LTV) up to 75–80%

• Prepayment penalties may apply

DSCR loans are designed for long-term investment strategies, not short-term flips.

When a DSCR Loan Makes Sense

DSCR loans are a strong option when:

• Personal income is difficult to document

• You are self-employed or a full-time investor

• Properties are owned in an LLC

• Cash flow matters more than tax returns

• You want to scale without personal DTI limitations

They are often preferred over traditional commercial loans for rental-focused investors.

DSCR Loans vs Other Commercial Loan Options

DSCR loans are just one type of commercial financing. Depending on your goals, other programs may be more suitable.

• DSCR Loans – Best for stabilized rental income

• Bridge Loans – Short-term financing for transitional properties

• Hard Money Loans – Asset-based lending for speed and flexibility

• Traditional Commercial Loans – Income and borrower-based underwriting

• SBA Loans – Owner-occupied business properties

Each program serves a different investment strategy.

Frequently Asked Questions About DSCR Loans

Do DSCR loans require tax returns?

No. Qualification is based on property income, not personal tax returns.

Can first-time investors use DSCR loans?

Yes, depending on the lender and property type.

Are DSCR loans available nationwide?

Yes. DSCR loans are commonly available across most U.S. markets.

Do DSCR loans require a minimum credit score?

Most programs have minimum credit score requirements, though they vary by lender.

Can I use a DSCR loan for multiple properties?

Yes. Many investors use DSCR loans to build and refinance portfolios.

Get Started With a DSCR Loan

If you’re looking to purchase, refinance, or expand your investment portfolio, a DSCR loan may offer the flexibility and scalability you need.

Speak with a commercial loan specialist to review your property, cash flow, and financing options.

Questions Call (888)214-5151