A DSCR loan (Debt Service Coverage Ratio loan) is a type of real estate financing — often used for investment properties — that’s approved based on the property’s cash flow potential, not the borrower’s personal income.
How It Works
- Lenders calculate the Debt Service Coverage Ratio:
DSCR=Property’s Gross Rental IncomeProperty’s Annual Debt Payments\text{DSCR} = \frac{\text{Property’s Gross Rental Income}}{\text{Property’s Annual Debt Payments}}DSCR=Property’s Annual Debt PaymentsProperty’s Gross Rental Income - A DSCR above 1.0 means the property produces enough income to cover the mortgage payments.
- Example: DSCR of 1.25 = property earns 25% more than needed to pay its loan.
Benefits
- No Personal Income Verification
Approval is based on the property’s income, so W-2s, tax returns, or pay stubs aren’t required. - Ideal for Self-Employed or Multiple Property Owners
Perfect for investors whose tax write-offs reduce their reported income but whose properties still perform well. - Easier Approval for High Cash-Flow Properties
If the rental income is strong, you can qualify even with complex personal finances. - Can Finance Multiple Properties
Some DSCR programs have no cap on the number of financed properties. - Flexible Ownership Structures
Often available for LLCs, corporations, or personal names. - Faster Closing
Less paperwork than traditional loans, which can speed up underwriting.