What Is a DSCR Loan?
A DSCR (Debt Service Coverage Ratio) loan qualifies borrowers based on the property's rental income rather than the borrower's personal income or employment. This makes them popular with self-employed investors and those with complex tax returns.
DSCR = Annual NOI ÷ Annual Debt Service
DSCR Minimums by Lender Tier
| DSCR | Classification | Rate Impact | Max LTV |
|---|---|---|---|
| 1.25+ | Strong | Best pricing | 80% |
| 1.20–1.24 | Good | +0.125% to +0.25% | 75–80% |
| 1.10–1.19 | Acceptable | +0.25% to +0.50% | 70–75% |
| 1.00–1.09 | Minimum | +0.50% to +1.00% | 65–70% |
| 0.75–0.99 | "No Ratio" programs | Significant premium | 60–65% |
| Below 0.75 | Hard money only | N/A | 50–60% |
How Lenders Calculate Debt Service
Most DSCR lenders use PITIA (Principal + Interest + Taxes + Insurance + Association dues) for the denominator, not just P&I. This is stricter than using P&I alone.
PITIA Example: $2,400 P&I + $350 taxes + $150 insurance + $0 HOA = $2,900/month × 12 = $34,800 annual debt service
Other Qualifying Requirements
Credit Score
- 680+ for standard programs
- 720+ for best pricing
- 620–679 available with rate premium
Loan-to-Value (LTV)
- Single-family: up to 80% (20% down)
- 2–4 units: 75–80%
- 5+ units / commercial: 65–75%
Property Types
- Single-family and 1–4 unit rentals: Most lenders
- Short-term rentals (Airbnb): Some lenders (use market or 12-month average rents)
- 5+ unit multifamily: Specialty DSCR or commercial lenders
- Mixed-use: Selected lenders
Reserves
Most lenders require 3–6 months PITIA in reserves after closing.
How to Improve Your DSCR
- Raise rents — even 5–8% can move DSCR significantly
- Reduce debt service — larger down payment, lower rate, longer term
- Interest-only option — some lenders allow I/O to boost DSCR
- Reduce operating expenses — self-manage, shop insurance
- Add income — storage, parking, laundry
Topics:DSCR LoansReal Estate InvestingFinance