DSCRDSCR stands for Debt Service Coverage Ratio. Instead of underwriting your W-2 income and tax returns like a conventional mortgage, the lender underwrites the property. The one question that matters is whether the rent covers the loan payments with a margin of safety.
The DSCR in plain English
DSCR = net operating income (NOI) ÷ annual debt service. A DSCR of 1.0 means rent exactly covers the loan. Lenders want a cushion, so the usual floor is 1.2, meaning rent has to beat the debt by at least 20%. Run your own deal on the DSCR calculator.
A worked example
Say you buy a $200,000 rental that rents for $2,000 a month. With 25% down you finance $150,000. At a 7.0% DSCR rate on a 30-year term, principal and interest run about $998 a month, or roughly $12,000 a year. After a 35% expense load (taxes, insurance, management, maintenance, vacancy) your NOI is about $15,600. Divide NOI by debt and the DSCR is about 1.30, comfortably above the 1.2 line, so the deal qualifies.
Who a DSCR loan is for
- Self-employed investors whose tax returns understate real income.
- Entity buyers (LLCs) who want debt off personal credit.
- Portfolio scalers hitting conventional loan limits.
- Out-of-state buyers who need speed and flexibility.
Typical requirements
| Requirement | Typical |
|---|---|
| Minimum DSCR | 1.2 (some go to 1.0) |
| Down payment | 20–25% |
| Property type | Non-owner-occupied 1–4 unit rentals |
| Income docs | None (rent schedule / appraisal instead) |
| Credit score | Usually 660–680+ minimum |
| Term | 30-year amortization common |
The trade-offs
The upside is speed and access. No income docs, fast closes, LLC financing. The downside is cost. DSCR rates run above conventional mortgages because the lender takes more risk, often 7.0% to 8.5% versus the high 6s on an owner-occupied loan. Prepayment penalties in the first one to three years are common too. See current DSCR rates and the full DSCR loan guide.