DSCR Loans Explained: Rates, Requirements and How to Qualify
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Key takeaways
- DSCR = rent ÷ PITIA; most lenders want 1.0–1.25 and lend as low as 0.75 at reduced leverage.
- 30-year fixed money at 6–8% with no personal income docs — the long-term exit for hard money.
- Prepayment penalties are standard and buyable; compare step-down structures.
- Credit (660+), reserves (6 months) and property type drive approval more than anything else.
What a DSCR loan is
A debt service coverage ratio loan is a long-term mortgage on a 1–4 unit (sometimes 5–10 unit) rental where the lender qualifies the property instead of the borrower's personal income. The ratio compares gross rent to the proposed monthly payment including taxes, insurance and HOA dues. Because there is no debt-to-income test and no tax-return review, DSCR loans serve self-employed investors, portfolio landlords beyond the agency 10-loan cap, LLC borrowers and foreign nationals. They are a non-QM product, mostly funded through securitization, with pricing 75–150 bps above agency investor loans.
Calculating the ratio
Monthly rent $2,400. Payment on a $240,000 loan at 7.25% over 30 years: $1,637. Taxes $300, insurance $125, HOA $0. PITIA = $2,062. DSCR = 2,400 ÷ 2,062 = 1.16. Most lenders price in bands: ≥1.25 best, 1.00–1.24 slightly higher, 0.75–0.99 “no-ratio” pricing with 5–10% less leverage. Rent is set from the appraiser's market rent schedule; existing leases count when higher at some lenders. Try the DSCR calculator.
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2026 program terms
| Feature | Typical |
|---|---|
| Rate | 6.0% – 8.0% (30-yr fixed; IO and ARM options) |
| Max LTV | 80% purchase / 75–80% rate-term / 70–75% cash-out |
| Min credit | 660 (best pricing 740+) |
| Loan size | $75,000 – $3,000,000; portfolios to $20M+ |
| Reserves | 3–6 months PITIA |
| Prepayment | 3-2-1 or 5-4-3-2-1 step-down; buyout available |
| Vesting | Individual or LLC |
| Property | SFR, 2–4 units, condos, townhomes; STR and 5–10 units at select lenders |
Short-term rentals
A subset of lenders qualifies Airbnb/VRBO properties on 12 months of actual revenue or on third-party projections (AirDNA-style), usually with a haircut of 20–30% and a higher minimum DSCR. Expect lower LTV (70–75%) and a local-regulation review — markets with STR bans are excluded.
The process and timeline
- Pre-qualification: credit pull, property details, rent estimate — same day.
- Application and disclosures (business-purpose, so no TRID waiting periods at most lenders).
- Appraisal with rent schedule: 7–14 days.
- Title, insurance, entity docs, reserves verification.
- Clear to close: typically 3–4 weeks total; faster at tech-forward lenders.
DSCR vs. hard money
They are complements, not competitors. Hard money buys and fixes what a DSCR lender cannot yet finance (distressed, vacant, un-rented); DSCR refinances what hard money cannot afford to hold (30-year term, half the rate). The sequence is the BRRRR method. Some lenders offer both under one roof with a discount on the second loan.