What is a DSCR loan?

A DSCR loan is a mortgage for a rental property that qualifies on the property's rent instead of your personal income. The lender divides the monthly rent by the full monthly payment (principal, interest, taxes, insurance and any HOA dues), and if the rent covers that payment, usually at a ratio of 1.00 or more, the property qualifies. No tax returns, pay stubs or debt-to-income ratio are needed, though you still need credit, a down payment of commonly 20% to 25%, and cash reserves.

What does DSCR mean?

DSCR stands for debt service coverage ratio: the income a property produces divided by the debt payments it has to cover. Banks have used the measure on commercial buildings and business loans for decades, where it is net operating income over annual debt service. For one to four unit rentals, DSCR lenders use a simpler version built on gross rent:

DSCR = monthly rent ÷ monthly PITIA

PITIA is the whole housing payment: principal, interest, property taxes, insurance and association (HOA) dues. Taxes and insurance sit in the denominator, so they move the ratio as much as the interest rate does. Our page on PITIA and what lenders include in it goes line by line.

The ratio has its own rules about which rent and which payment count. The step-by-step guide to calculating DSCR covers leases, vacant units, short-term rental income and how to work out the largest loan a rent supports.

How does a DSCR loan work?

A DSCR underwriter looks at five things, and only the last one is about you.

1. The rent. For a long-term rental, usually the lower of the lease and the appraiser's market rent. For a short-term rental, 12 months of booking income or a discounted projection from comparable listings.
2. The payment. PITIA at the note rate. On an interest-only loan, many lenders use the interest-only payment plus taxes, insurance and dues instead.
3. The ratio. Rent over payment, against the program's minimum.
4. The leverage. The loan-to-value ratio, commonly up to 75% to 80% of the price on a purchase and 70% to 75% of the appraised value on a cash-out refinance.
5. You. Your credit score (the middle of three bureau scores), your reserves, any past bankruptcy or foreclosure, the properties you already own, and, if you buy through an LLC, a personal guarantee.

What the lender does not ask for: W-2s, pay stubs, tax returns, a verification of employment or a debt-to-income calculation. You still sign an application, and the lender still reads your credit report, your bank statements and your schedule of real estate owned.

Why a DSCR lender can skip your income

Most home loans fall under Regulation Z, the federal Truth in Lending rules, which require a lender to verify that you can repay. Regulation Z exempts credit that is primarily for a business purpose, and the CFPB's official interpretation treats a loan to buy, improve or maintain a rental that is not owner-occupied as business purpose. The same interpretation sets the line: if you expect to occupy the property for more than 14 days in the coming year, it is not treated as non-owner-occupied.

That one exemption explains most of what makes a DSCR loan different:

• No ability-to-repay test, so income documents are optional and the rent does the qualifying.
• A term sheet instead of a Loan Estimate, and a settlement statement instead of a Closing Disclosure.
• Prepayment penalties are allowed, where consumer home loans are mostly barred from them.
• No three-day right to cancel on a refinance, because that right belongs to loans on your own home.
• A business-purpose and occupancy statement at closing. Living in the property after signing it is occupancy fraud.

DSCR loans are also non-QM loans: they are not sold to Fannie Mae or Freddie Mac but to private investors, often through securitizations. Those investors price each risk separately and want protection against early payoff, which is why DSCR rates run higher than agency rates and why the penalty is standard.

Typical DSCR loan terms

Every lender sets its own guidelines and they change often, but the ranges are consistent across the market.

The figures that matter most to a first deal, the score, the down payment and the reserves, are broken out in DSCR loan requirements.

A DSCR loan from start to finish

A ratio of 1.25 is not the same as positive cash flow. PITIA leaves out vacancy, repairs, replacements and management. On this house, setting aside 5% of rent for vacancy, 5% for repairs and $150 a month for big replacements leaves about $177 a month, and an 8% property manager would turn that into a small monthly loss. Lenders size the loan; you still have to analyze the rental as an investment.

DSCR loan vs conventional investment loan

A conventional loan sold to Fannie Mae or Freddie Mac can finance a rental too, and for a borrower with documented income it often costs less. The two are built differently.

The conventional figures are Fannie Mae's as of 2026: its eligibility matrix for leverage, its Selling Guide for the 10-property limit, and its short-term rental policy updated in September 2026.

Pros and cons of a DSCR loan

Pros:

• No income documents. Self-employed investors whose tax returns show little income qualify on the property.
• No debt-to-income ceiling. Each property stands on its own rent, so a portfolio can keep growing.
• No 10-property cap. Investors past the agency limit keep financing.
• LLC ownership is routine.
• Short-term rental income counts at many lenders, including projections on a purchase.
• Faster and simpler files when the documents are ready.

Cons:

• Higher rates than agency loans, plus points and lender fees.
• Prepayment penalties on most loans, which make an early sale or refinance expensive.
• More cash up front: 20% to 25% down and months of reserves.
• The rent has to work. In markets where rents lag prices, the ratio fails or the loan shrinks.
• The appraisal decides the rent, and a low rent figure can reprice or shrink the loan late in the process.

Who a DSCR loan suits, and who it does not

A DSCR loan tends to fit when:

• Your taxable income is low because of write-offs, self-employment or a new business.
• Your debt-to-income ratio is already stretched by other mortgages.
• You own several financed properties, or plan to.
• You want to hold the property in an LLC.
• You are buying or refinancing a short-term rental.
• You are refinancing out of a rehab loan into long-term debt, as in the BRRRR method.

It tends not to fit when:

• You will live in the property, even part of the year. That is a home loan.
• You have strong W-2 income and few properties: a conventional loan will usually cost less.
• You expect to sell within a year or two, unless you pay for a loan without a penalty.
• The loan is small, under the common $75,000 to $150,000 minimums, where fees take a large share.

Is a DSCR loan a hard money loan or a commercial loan?

Neither. Hard money is short-term, interest-only financing for buying and fixing, usually 6 to 24 months, priced well above a DSCR loan and meant to be repaid by a sale or a refinance. A DSCR loan is long-term, typically 30 years, and is often the refinance that pays a hard money loan off.

A commercial loan on a building of five or more units is usually sized on net operating income, often with a shorter term and a balloon. A DSCR loan on one to four units is a residential investor loan: residential appraisal forms, residential title and closing, with the rent test in place of an income test. It is not a conventional loan either, since it is not sold to the agencies.

What a DSCR loan costs

The rate is the largest cost, and it is built from your credit score, leverage, DSCR, loan size, property type and the prepayment penalty you accept. DSCR loan rates explains each adjustment and how points buy the rate down. On top of the rate, expect:

• Origination points, commonly 1 to 2 points (1% to 2% of the loan), plus underwriting and processing fees.
• The appraisal, commonly $400 to $1,000, more for 2 to 4 units or a short-term rental analysis.
• Title, escrow and recording, as on any mortgage.
• Prepaid interest, taxes and insurance at closing.
• A prepayment penalty if you pay off early. How DSCR prepayment penalties work prices each structure.

How to get a DSCR loan, step by step

1. Run the numbers. Get a real rent figure, the tax bill and an insurance quote, and work out the ratio. GoDoor's quote calculator does the math on your own figures.
2. Get a quote and a term sheet. A broker prices the file across lenders whose programs fit it.
3. Choose an option and lock. Each option trades rate against points and prepayment length.
4. Send the documents at once: ID, credit authorization, bank statements, your schedule of real estate owned, the contract and any LLC papers.
5. The appraisal sets the value and the market rent.
6. Underwriting verifies everything and issues conditions to clear.
7. Closing: you sign, the loan funds, and the documents are recorded.

The DSCR loan process walks through each step with typical timelines.

General education, not financial, tax or legal advice. Figures are examples: rates, rules and programs change, and every lender sets its own. Last checked November 4, 2026.