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What a DSCR loan is
A DSCR loan is an investment property loan that qualifies the deal on the rental income of the subject property rather than the borrower’s wages, tax returns, or debt-to-income ratio. DSCR stands for debt service coverage ratio: gross monthly rent divided by the property’s full monthly housing payment, known as PITIA (principal, interest, taxes, insurance, and HOA dues when applicable).
DSCR loans are often marketed alongside non-QM mortgages. These rental loans are business-purpose credit, which Regulation Z exempts from its requirements, including the federal ability-to-repay rule (12 CFR 1026.3(a)). Lenders set their own rental-income underwriting requirements.
The product fits a small landlord buying or refinancing a 1-4 unit rental who either has complex tax returns, writes off most of the rental income, is self-employed, or already owns several financed properties and has hit a conventional cap. For a wider look at non-QM options, see our guide to non-QM loans.
How lenders calculate DSCR
The formula is simple:
DSCR = Gross monthly rent / Monthly PITIA
- A DSCR of 1.0 means the rent exactly covers the payment.
- Above 1.0, rent exceeds PITIA before other operating expenses.
- Below 1.0, rent falls short of PITIA.
This ratio does not establish profitability. Budget separately for vacancy, repairs, management, and other expenses that are absent from PITIA.
For a fully amortizing loan, PITIA includes principal and interest, monthly property taxes, insurance, and HOA or condo dues. Include required flood coverage in insurance. Ask the lender to confirm every item in its denominator, especially if you are considering an interest-only payment.
Where the rent figure comes from
The lender checks the lease and the appraiser’s rent estimate. A one-unit rent estimate may use Fannie Mae Form 1007 (Single-Family Comparable Rent Schedule); Form 1025 (Small Residential Income Property Appraisal Report) applies to two- to four-unit properties. These are appraisal forms, not a single set of DSCR program rules.
Accolend, for example, says it uses the lower of actual rental income and appraised market rent. Do not assume a below-market lease can be replaced with a higher market estimate. For a vacant property, ask whether projected market rent is acceptable: Visio advertises financing vacant rentals using appraised rental income. Short-term rental income is handled separately and discussed below.
A worked example
Say an investor buys a single-family rental for $250,000 with $50,000 down (20%). Assume a fully amortizing loan with these inputs:
- Loan amount: $200,000
- Rate: 8.00% (hypothetical DSCR rate; see rate note below)
- Term: 30-year fixed
- Principal and interest: $1,467.53 per month
- Property taxes: $250 per month
- Hazard insurance: $125 per month
- HOA, flood insurance, and mortgage insurance: $0 (assumed not required)
- PITIA: $1,842.53 per month
- Signed lease and supported market rent: $2,300 per month
Taxes and insurance are included above; closing costs, vacancy, repairs, and management expenses are excluded.
DSCR = $2,300 / $1,842.53 ≈ 1.25
The unrounded ratio is about 1.2483. If a program requires at least 1.25, rounding for this illustration does not establish eligibility. If Form 1007 market rent came in at $2,100 and the lender used that lower figure, the ratio would drop to about 1.14. Confirm how the lender calculates and rounds its qualifying ratio.
Rate note. The 8.00% rate is hypothetical, not a current quote. DSCR rates can run higher than conventional investment property rates, but the difference depends on the loan terms. Compare quotes with the same term, points, and prepayment conditions.
Typical DSCR loan requirements
DSCR loan requirements come from each lender rather than a single agency. The published consumer terms below illustrate the differences; they are not a market survey or provider recommendation. Confirm eligibility and pricing for your property.
Minimum DSCR
Accolend publishes a minimum ratio of 0.75 for purchases and 1.0 for refinances. Griffin Funding publishes no minimum DSCR and offers a no-ratio option. A no-ratio program does not qualify the property on cash flow. Ask how a lower ratio changes the required equity, reserves, and price.
Down payment and LTV
Griffin Funding describes 20% down as typical for its DSCR loans, with 15% down at a credit score of 740 or higher available. Accolend publishes purchase and refinance financing up to 80% loan-to-value (LTV).
LTV is the loan amount divided by the property value the lender accepts. Cash-out limits also vary: Griffin advertises up to 80% LTV for DSCR cash-out refinancing. These maximums are conditional, not promises of financing.
Credit score
Published minimums differ: 620 at Griffin Funding, 640 at Accolend, and 680 at Visio. A score that meets a minimum does not ensure approval or a particular price. Visio also reviews credit history, including significant credit events and past-due payments.
Reserves
Visio requires six months of mortgage payments in reserves, separate from cash to close on purchases and no-cash-out refinances. Accolend specifies six months of PITI reserves.
Visio allows retirement accounts at 70% of their balance for reserves and says cash-out proceeds can meet its reserve requirement. Ask which assets your lender accepts and how it values them.
Vesting in an LLC
Griffin Funding, Visio, and Accolend publish LLC borrowing options with personal guarantees. The guarantee means forming an LLC does not remove your personal repayment obligation. Ask whose guarantee is required rather than assuming a universal ownership-percentage cutoff.
Griffin asks LLC borrowers to prepare articles of organization, an operating agreement, an EIN letter, and a certificate of good standing. Confirm the lender’s entity and signing requirements before setting a closing date.
Property types
Griffin publishes eligibility for one- to four-unit rentals, condos, and short-term rentals. Check the specific property before paying for an appraisal. Visio notes that program eligibility varies for warrantable and non-warrantable condos, multifamily properties, and vacation rentals.
Short-term rental rules
Griffin accepts short-term rentals using appraised market rent, documented rental history, or AirDNA-style market data, depending on the program. Coverage requirements and LTV limits can differ from long-term rental loans. There is no universal twelve-month history rule in these published terms.
Bring available platform statements and ask what history or projections the lender will accept. Griffin requires the market to permit short-term rental use. Check local requirements and HOA restrictions before relying on vacation-rental revenue; do not assume a lender will automatically substitute long-term rent if your planned use is prohibited.
Costs: rate, points, and prepayment penalties
Compare the rate, upfront charges, and early-payoff terms together. A lower quoted rate can come with costs that matter if you sell or refinance soon.
Rate
DSCR rates can be higher than conventional investment property rates. Griffin lists credit score, DSCR, down payment, points, and prepayment term as pricing inputs. Request comparable written quotes rather than budgeting for a fixed market-wide spread.
Points and fees
Ask for an itemized quote for origination, underwriting, appraisal and rent analysis, title, recording, and other closing charges. Visio says origination and administrative fees are common; Accolend advertises no-points options. Do not assume every DSCR loan carries a one- or two-point origination charge. Compare the total upfront cost alongside the rate.
Prepayment penalty
Prepayment penalties are common, but the contract controls. Visio describes these structures in its consumer guide:
- 5-4-3-2-1: a five-year step-down, with 5% in year one, 4% in year two, then 3%, 2%, and 1%.
- 3-2-1: a three-year step-down.
- Fixed penalties: a specified percentage for a set period.
Accolend also publishes a 3-3-3 option and no-prepayment-penalty options. Ask what amount the percentage applies to, whether partial payments trigger it, and which sale or refinance events are covered.
Griffin says buying out the penalty means a higher rate, but it does not publish a universal rate increase. Request both versions in writing. Match the penalty period to a realistic holding period, and include a possible early-payoff charge when comparing offers.
DSCR versus a conventional investment loan
Both products exist to finance a 1-4 unit rental. They differ in how they qualify the borrower and what they cost.
Conventional investment property loan
- A conventional investment loan evaluates borrower income, DTI, assets, and credit. For a Fannie Mae rental purchase, qualifying rent generally starts at 75% of gross monthly rent, then subtracts PITIA. Documentation and property-management experience affect how much can help you qualify; refinances may require Schedule E cash-flow analysis.
- Fannie Mae permits up to 10 financed properties for a second-home or investment-property loan through Desktop Underwriter (DU). The count includes the financed primary residence and generally counts one- to four-unit properties where the borrower is personally obligated. Jointly financed properties count once. This is not a universal limit for every conventional product.
DSCR loan
- A DSCR loan instead focuses on the subject rental’s income and payment, with no personal income documents or DTI calculation under programs such as Griffin’s. LLC vesting is available. Griffin advertises no financed-property cap; ask other lenders about portfolio and exposure limits.
- Compare actual quotes for costs. A DSCR loan may have a higher rate or a prepayment penalty that changes the value of simpler income documentation.
For a broader walkthrough of financing a rental, read our complete guide to investment property mortgages. Investors tapping equity on a current rental can compare the DSCR cash-out option against a conventional path in cash-out refinance on an investment property. If a short-term rental is on the table, the how to choose a good Airbnb rental property piece offers background for evaluating a vacation-rental purchase.
Who should not use a DSCR loan
Consider another financing path or reconsider the purchase when:
- You can document personal income and qualify conventionally. Compare total costs before paying for DSCR flexibility you may not need.
- You plan to live in the property. These DSCR programs finance rentals; ask about occupancy restrictions and default provisions before signing.
- Rent falls short of PITIA and you lack cash to cover the gap, vacancy, and repairs. A no-ratio approval would not make that budget sustainable.
- You expect to refinance or sell during the penalty period and cannot absorb the charge.
The product can fit when personal income is hard to document, you want LLC vesting, or conventional property-count rules restrict your options. Investors refinancing more than one rental at the same time should also read refinancing two properties at once.
Next step
If you have a target property or a current rental to refinance, pull together the lease (or recent rent roll), an estimate of taxes and insurance, your credit score range, and the down payment or equity you can bring. Ask lenders for written preliminary terms showing the qualifying rent, payment, reserve requirement, upfront charges, and prepayment options. Final terms depend on the appraisal and underwriting.
