A DSCR loan is a rental property loan that qualifies on what the property earns rather than on what you earn. There is no tax return review, no debt to income ratio and no employment verification. The question the lender asks is a narrower one: does the rent cover the payment. For investors whose tax returns understate their real income, and for anyone building a portfolio faster than a conventional lender will allow, that one change decides whether the next property gets financed.
This is what a DSCR loan is, how the ratio works, what it still checks, where it beats a conventional loan and where it does not, and the published terms of ours.
How the ratio works
DSCR stands for debt service coverage ratio. On a residential rental, the lender divides the monthly rent by the monthly housing payment: principal, interest, property taxes, insurance and any association dues.
A property that rents for $4,200 a month against a $3,500 payment has a ratio of 1.20. The rent covers the payment with 20% to spare. At 1.00 the rent covers the payment exactly, and below 1.00 you cover the shortfall yourself.
Commercial and larger multifamily loans use a different convention: net operating income, after vacancy and operating expenses, against annual debt service. The two methods produce very different numbers for the same building, so ask which one a lender uses before you compare quotes. Our post on how DSCR is calculated walks through both, line by line, and the DSCR calculator runs the ratio on your own numbers.
What a DSCR loan does not look at
- Personal income. No W-2s, pay stubs or tax returns.
- Debt to income ratio. Your other mortgages, car payments and credit lines are not divided into your income, because your income is not part of the test.
- Employment. Self-employed, retired or between ventures, the property qualifies itself.
That is why a DSCR loan is the natural next loan for a self-employed investor whose write-offs make a conventional file impossible, and for an investor whose portfolio has outgrown what a debt to income ratio can carry.
What it still looks at
A DSCR loan is not a no-questions loan. The property is underwritten, and so are you, in a narrower way.
- The property and its value. An appraisal sets the value and, on a rental, a market rent opinion. Leverage runs off that value.
- The rent. A signed lease, or the appraiser’s market rent on a vacant property. For a short term rental, a market analysis and the booking history where one exists.
- Credit. Our rental DSCR product has a 620 minimum credit score.
- Occupancy. Non-owner occupied only. The loan is a business purpose loan, and most investors hold the property in an LLC. Our post on LLC vesting covers how that works.
- Leverage. Up to 80% LTV on our program, which means at least 20% down on a purchase plus closing costs.
Our published DSCR terms
Our rental property loans publish these terms:
- Rates from 6.50% to 9.99% on the Non-QM tier
- LTV up to 80%
- 5, 7, 30 and 40 year fixed terms
- 620 minimum credit score
- Single family homes, condos, townhomes and 2 to 4 unit properties
- First time investors accepted on the rental DSCR product
- Short term rental income permitted
The rental portfolio and multifamily term products sit on the same program and add multifamily, condos and mixed use, with landlord experience required. Rates, terms and pricing are subject to change and every loan is subject to underwriting.
DSCR loan or conventional investment loan
A conventional investment property loan can price lower, and for an investor with clean W-2 income and one or two rentals it may be the cheaper money. The trade is everything that comes with it: full income documentation, a debt to income limit that tightens with every property you add, and guidelines that make portfolio growth slow.
A DSCR loan costs more because it asks less of you. Whether that trade is worth it comes down to three questions. Can you document enough income to qualify conventionally at all? How many more properties do you plan to buy? And what is it worth to close on the property’s timeline rather than your paperwork’s? For most active investors the second and third answers settle it.
The most common use: the refinance out of a hard money loan
For many investors the DSCR loan is the destination, not the starting point. The sequence is familiar: buy a property that needs work with a bridge loan or a fix and flip loan, renovate, lease it, then refinance into long-term DSCR debt that repays the short-term loan.
The refinance is your exit strategy, so test it before you buy. Take the projected finished value and apply the 80% LTV cap. Then check the projected rent against the new payment. The smaller of the two results is the loan you can actually get. If it does not repay the bridge balance, you have found the gap before it cost you anything.
DSCR loans in California: the denominator is the story
In California the rent side of the ratio is usually strong. The trouble tends to sit in the payment, and three lines deserve attention before you make an offer.
Property tax on purchase. A California purchase is reassessed at the price you pay. A property the seller has owned for decades may show a tax bill far below what yours will be. Underwrite the new tax, not the listing’s.
Insurance. Premiums in parts of the state have risen sharply, and some carriers have stopped writing new policies in higher risk areas. The premium sits in the denominator, so get a real quote early, especially in wildfire zones.
Special assessments and association dues. Newer communities in San Diego, Riverside and San Bernardino counties often carry Mello-Roos or other special taxes on top of the base rate, and condos carry association dues. Both count as payment.
A property that looks comfortable at 1.25 on the listing’s numbers can land near 1.00 once these are real. That is the difference between a refinance that works and one that arrives short. For a property in San Diego itself, our San Diego DSCR loans page covers the local lines, including the city’s short term rental license caps.
Short term rentals
Our program permits short term rental income. On the right property in the right market that income is materially higher than a long term lease, which raises the ratio and the loan. The trade is volatility and documentation: the lender needs to see the income, and local rules on short term rentals change. Our guide to short term rental loans covers how those files are underwritten, and the vacation rental scenario shows how we structure them.
How to get started
Send us the property, the rent or the lease, the purchase price or the payoff you are refinancing, and your credit score range. We will tell you where the ratio and the leverage land, which one limits the loan, and what the terms look like. Start on the borrow page, submit a loan request or call (619) 617-2797.
