DSCR Loans Meaning: How to Apply & Who Can Apply (Rates)

Published On January 8, 2024

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As you know, buying and selling commercial real estate is a very complex process. It includes negotiations, appraisals, contracts, and many other aspects.

You also need to find out the financial support that is with a loan or mortgage. You can speed up this process with a debt-service coverage ratio loan.

Are you aware of this loan? If not, in this article we are going to discuss more DSCR loans and their pros and cons.

What is DSCR?

The Debt Service Coverage Ratio is a measuring tool for a property’s annual gross rental income and its annual mortgage debt.

It monitors how much money the property makes from the rent and compares it to how much you spend on its mortgage. This will include the loan amount, interest, taxes, insurance, and homeowners association. 

This will help lenders figure out two important things, that means, how much rent income and comparing with how much coverage there will be at a specific loan amount. But remember that this ratio will not consider other costs such as property management, maintenance, utility bills, and repair expenses.

What are DSCR Loans?

With DSCR Loans, people without regular income can buy a house. DSCR loan is a non-QM loan for real estate investors. The lenders use a DSCR to decide if you can repay the loan amount without looking at your income. DSCR monitors the income that will receive from properties that you are renting out.

As you are aware the deduction from properties may reduce taxable income which makes it hard for investors to know their income.

So, lenders use the DSCR method to know whether the investor can make the loan repayment. If you have a business that has a lot of deductions and write-offs, a DSCR loan will be helpful for you.

How Does the DSCR Loan Work?

Real estate investors often write off the expenses on their properties and this makes it hard for them to qualify for a regular loan. here the DSCR loan comes in handy. You don’t need to provide proof of income tax which means tax returns or pay stubs. 

If you are a real estate investor looking to buy a property, a DSCR loan is a good option for you, especially if you are thinking about renting it out and earning some money through it.

This loan works well with different types of properties such as single-family houses, townhomes, condos, and small multifamily properties. This will generate a revenue stream for real estate investors.

What is the DSCR Loan Qualifications?

If you want a DSCR loan, there are some criteria that you need to fulfill. 

  • Normally lenders need a DSCR ratio of 1.25 to make sure that the property makes enough money through rents to pay off its debts. Some funding institutes even accept lower ratios of 0.75.
  • Your credit score and financial stability are checked for a DSCR loan. The specific credit score depended on the lenders and their loan terms. Some institutes even provide loans if your credit score is as low as 620.
  • DSCR loan amounts range between $100,000 to $5,000,000. This will give you flexibility depending on the property cost that you are considering.
  • They will also check the property’s current market value and rental income generated through appraisal.
  • DSCR loans are only for the properties that you are planning to rent out and want to make money from it. This means this loan is specifically for investment properties.

How you can apply for DSCR loans?

To apply for a DSCR loan, follow the below steps:

  • Look for a bank or lender that provides a DSCR loan program.
  • Once you choose a lender, fill out a DSCR loan application form.
  • After that, you will need to calculate your debt service coverage ratio and fill out the rent schedule. With this schedule, you can show a property’s market value which helps you determine if you are capable of mortgage payments.
  • After calculating DSCR, review your application. The lender will now offer you an interest rate for your loan. You will have to decide whether you are ready for it or not. 
  • After deciding to go for it, the approval process will begin from the lender’s side.
  • Once your loan is approved, the lender will immediately release your funds and the amount will be deposited in your bank account.

Pros and Cons of DSCR loan

No income documentation requiredHigher down payments
Faster approval processHigher interest rates
No limit on the number of propertiesLimited financing for certain property types
Unlimited cash-outPrepayment penalties may apply

Best DSCR Loan Companies

  • Kiavi
  • Beeline
  • New Silver
  • Angel Oak
  • Griffin Funding
  • Lima One Capital
  • Truss Financial Group
  • North American Savings Bank


DSCR loan can be the best financial loan option for income-generating real estate. This is particularly true for investors looking to expand their portfolios. Yes, DSCR loans have their cons like high interest rates and few financing options. You should opt for DSCR loans after considering their pros and cons before deciding for a loan. You also need to make sure that you have good financial stability before applying for this loan.

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FAQs for DSCR Loan

DSCR loans do not require proof of personal income or tax returns. These loans focus on the property’s cash flow, making it easier for real estate investors to qualify based on rental income. DSCR loans are particularly beneficial for investors with significant write-offs and deductions.

DSCR loans are designed for investment properties that generate rental income. Eligible property types include single-family homes, condos, and townhomes, as well as small multifamily properties.

As per DSCR loan interest rates index is currently at 7.935%

DSCR score: To figure out the debt service coverage ratio (DSCR), you divide the monthly rent the property brings in by the monthly mortgage payment. Usually, lenders want a DSCR of at least 1.1x. This means that the property’s rental income should be at least 10% more than the mortgage payment.

It allows you to snag an investment property, even if your income would usually disqualify you. The cool part? There’s no cap on the number of these loans you can take. Unlike traditional mortgages that limit the number of rental properties you can buy, DSCR loans give you the green light to grab as many as you’d like.

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