DSCR Loan

DSCR (Debt Service Coverage Ratio) loans are a type of non-QM (non-qualified mortgage) financing designed specifically for real estate investors. Rather than evaluating personal income, the lender evaluates whether the rental property generates enough income to cover its own mortgage payment. The DSCR ratio is calculated by dividing the property's gross rental income by the total monthly housing expense (principal, interest, taxes, insurance, and association dues where applicable). A ratio of 1.0 or above is generally required, though some programs allow below 1.0 with stronger compensating factors. Because DSCR loans fall outside standard Fannie Mae/Freddie Mac guidelines, each lender sets their own underwriting standards. This means guidelines, pricing, reserve requirements, and LLC eligibility can vary significantly between lenders. DSCR loans can be a useful tool for investors building a portfolio, particularly those whose personal tax return income doesn't reflect their actual financial position. As with any investment property financing, the full cost picture — including loan pricing, down payment, reserves, and cash flow projections — should be carefully evaluated.