A DSCR loan is the dominant long-term financing product for buy-and-hold residential rental investors in the United States. The DSCR (Debt Service Coverage Ratio) loan replaces the personal income verification used in conventional mortgages with a single property-level test: does this property generate enough income to cover its own loan payment?
The formula
DSCR = Net Operating Income (NOI) ÷ Annual Debt Service.
If a property generates $36,000 of net operating income per year (gross rents minus taxes, insurance, management, repairs) and the annual loan payment is $30,000, the DSCR is 1.20x, the property earns 20% more than the loan payment.
Most DSCR programs require a minimum DSCR of 1.0x to 1.25x. Below 1.0x the property doesn't break even on the loan and the deal is non-qualifying. Above 1.25x, the borrower gets better pricing, higher leverage, or both.
Documentation: what you don't need
- No W-2s
- No personal tax returns
- No employment verification
- No paystubs
- No DTI calculation
Documentation: what you do need
- Property address and purchase contract (or current loan if refinance)
- Rent roll (current or projected by market rent appraisal)
- Operating expenses (or lender uses standard ratios if missing)
- Property tax and insurance estimates
- Borrower credit report (most programs require 660+, some 700+)
- Asset statements showing closing funds and reserves
- Title commitment and property insurance binder
Typical DSCR loan terms
- Loan size: $100K to $5M (most lenders), up to $50M+ on portfolio programs
- Rate: 6.5–9.5% (varies by DSCR, LTV, and property type)
- Term: 30-year fixed, 5/1 ARM, 7/1 ARM, interest-only options
- LTV: up to 80% on purchase, 75% on cash-out refinance
- Property types: 1–4 unit residential, small multifamily, short-term rentals, build-for-rent
- Prepayment: most programs include 3–5 year prepay penalty (declining schedule)
Who DSCR loans are built for
Buy-and-hold rental investors building a portfolio. Self-employed borrowers whose tax returns don't reflect actual cash flow. Investors who own 10+ properties and have run out of conventional loan slots (Fannie/Freddie cap at 10 per borrower). STR (short-term rental) operators where conventional underwriting doesn't fit the income pattern. Portfolio investors using blanket DSCR loans across 5, 10, or 20+ properties under a single facility.
DSCR loans are not consumer loans, they require the property to be owned in an LLC or other entity (business-purpose) and the property cannot be the borrower's primary residence.