What is a DSCR Loan?
A Debt Service Coverage Ratio (DSCR) loanis a type of investment property financing that qualifies borrowers based on the property's rental income rather than the borrower's personal income. This makes DSCR loans ideal for self-employed investors, those with complex tax returns, or anyone who wants to scale their portfolio without traditional income documentation.
Unlike conventional loans that require W-2s, tax returns, and detailed employment verification, DSCR loans focus on one key metric: whether the property's income can cover its debt obligations.
Key Benefit:No personal income verification required. Qualify based on the property's cash flow, not your tax returns.
How DSCR is Calculated
The DSCR formula is straightforward:
DSCR = Monthly Rental Income ÷ Monthly PITIA
PITIA stands for Principal, Interest, Taxes, Insurance, and Association dues (HOA). This represents your total monthly housing payment.
Example Calculation
| Monthly Rent | $2,500 |
| Principal & Interest | $1,500 |
| Property Taxes | $250 |
| Insurance | $150 |
| HOA Dues | $100 |
| Total PITIA | $2,000 |
DSCR = $2,500 ÷ $2,000 = 1.25
A DSCR of 1.25 means the property generates 25% more income than needed to cover its debt—a healthy ratio that most lenders will approve.
DSCR Requirements by Ratio
Best rates, lowest down payments, all lenders
Standard rates, most programs available
Higher rates, larger down payment, select lenders
EHM Strategies offers DSCR programs starting at 0.75 ratio.Even if your property doesn't fully cover its expenses, you may still qualify with compensating factors.
Who Should Use a DSCR Loan?
Self-Employed Investors
Complex tax returns with write-offs that reduce reported income
Portfolio Scalers
Investors with 5+ financed properties hitting conventional limits
LLC/Entity Buyers
Purchasing in an LLC or corporation name for liability protection
BRRRR Investors
Refinancing after rehab to pull out equity and repeat
Foreign Nationals
Non-US citizens investing in American real estate
High-Net-Worth Individuals
Those who prefer not to document personal income
Typical DSCR Loan Terms
| Feature | Typical Range |
|---|---|
| Loan Amount | $100K – $3.5M+ |
| LTV (Purchase) | Up to 80% |
| LTV (Cash-Out Refinance) | Up to 75% |
| Credit Score | 660+ (680+ for best rates) |
| Loan Terms | 30-year fixed, 5/6 ARM, 7/6 ARM, Interest-only |
| Property Types | SFR, 2-4 units, condos, townhomes |
| Prepayment Penalty | 3-2-1 or 5-4-3-2-1 (negotiable) |
Documentation Required
One of the biggest advantages of DSCR loans is the minimal paperwork. Here's what you'll need:
Required Documents
- Purchase contract or property address
- Appraisal (ordered by lender)
- Rent roll or lease agreements
- 2 months bank statements
- Entity documents (if applicable)
- Insurance quote
Not Required
- Tax returns
- W-2s or pay stubs
- Employment verification
- Personal financial statements
- DTI calculations
Typical Timeline
Application
Submit application and initial documents
Processing
Loan package reviewed, appraisal ordered
Appraisal
Property inspection and appraisal report
Underwriting
Final review and conditional approval
Clear to Close
All conditions met, closing scheduled
Closing
Sign documents, funds disbursed
Tips for DSCR Loan Approval
Maximize Rental Income
Consider furnished rentals or short-term strategies to boost income (where allowed).
Shop Insurance
Lower insurance costs directly improve your DSCR. Get multiple quotes.
Increase Down Payment
A larger down payment reduces your loan amount and improves DSCR.
Buy Down the Rate
Paying points to reduce your rate lowers monthly P&I and improves DSCR.
Consider Interest-Only
IO loans have lower payments, significantly improving DSCR ratios.
Choose the Right Property
Properties in high-rent markets naturally produce better DSCRs.