Loan Types
A DSCR loan is commercial financing that qualifies on a property's rental income rather than the borrower's personal income. Lenders divide the property's annual net operating income by its annual debt service to get the Debt Service Coverage Ratio, and approve when that ratio clears their threshold — typically 1.20 or higher. No tax returns or employment verification are required.
Key Takeaways
Divide the property's annual net operating income by its annual debt service. A DSCR of 1.25 means the property earns 25% more than it needs to cover the loan payments.
Net operating income is gross rental income minus operating expenses — taxes, insurance, management, maintenance, and a vacancy allowance — but before the mortgage itself. Annual debt service is twelve months of principal and interest, and most lenders will include taxes, insurance and any association dues in the calculation.
A ratio below 1.0 means the property does not cover its own debt. At exactly 1.0 it breaks even with no cushion, which almost no lender will write. The gap between 1.20 and 1.25 is often the difference between an approval and a decline, and above 1.25 you generally start earning better pricing.
Investors whose personal tax returns understate their real financial position, and anyone who has run out of room under conventional lending limits.
That covers self-employed borrowers writing off heavily against income, foreign nationals with no US tax returns, and investors who have hit the property count where agency financing stops. It also suits anyone who simply does not want to document personal income for a deal the asset can carry on its own.
It is a poor fit for properties that are vacant, in lease-up, or renting materially below market — the ratio is only as strong as the income, and a lender using appraiser-opined market rent on an empty building will usually come in short.
Expect rates roughly 0.5% to 2% above comparable conventional financing, with the spread driven by your ratio, credit profile and leverage.
Pricing improves as the DSCR rises, so a property at 1.40 will be quoted very differently from one scraping 1.20. Down payment is typically 20-30%, and most lenders want six to twelve months of PITIA held in reserves. Prepayment penalties are common, usually structured as a step-down over the first three to five years.
The trade is documentation and speed against price. Conventional is cheaper; DSCR is easier to qualify for and far more scalable.
Frequently Asked Questions
Most lenders want 1.20 or higher, meaning the property earns at least 20% more than its annual debt service. Some programs go down to 1.0 or even below at reduced leverage, but pricing worsens sharply. A ratio of 1.25+ generally earns the most competitive terms.
It is difficult. Since qualification depends on rental income, a vacant building forces the lender to rely on the appraiser's opinion of market rent, and many will decline or require a larger down payment, higher reserves and a stronger credit profile.
There is no practical limit. Because each property is underwritten on its own cash flow rather than against your personal debt-to-income, DSCR is the usual route once investors exhaust conventional financing at roughly four to ten properties.
Yes, typically 20-30%. Cash-out refinances are usually capped around 75% LTV. Foreign nationals should expect to be at the higher end of the down payment range.
Yes, and they are often the only practical option. No US tax returns, employment verification or Social Security number are required — an ITIN is generally acceptable, and qualification rests on the US property's cash flow.
DSCR is a specific type of Non-QM loan. Non-QM is the broad category of financing that sits outside agency documentation standards; DSCR is the version that qualifies purely on the property's debt service coverage. Other Non-QM programs may use bank statements or asset depletion instead.
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