You just found a rental property that cash flows, but you're self-employed. Maybe you own a business, do contract work, or live off investment income. Your tax returns are a mess of write-offs that make your income look like you're barely scraping by. A conventional lender took one look and said no.
This is exactly what DSCR loans were built for.
What Makes DSCR Loans Different
DSCR stands for Debt Service Coverage Ratio. These are non-QM (non-qualified mortgage) loans designed specifically for real estate investors. The underwriting focuses on one question: does the property's rental income cover the mortgage payment?
Traditional mortgages look at your W2s, tax returns, and debt-to-income ratio. DSCR loans skip all of that. The lender calculates whether the rent covers the PITIA (principal, interest, taxes, insurance, and association dues), and that ratio determines whether you qualify.
This makes them ideal for:
The DSCR Formula
The ratio itself is straightforward:
> DSCR = Gross Monthly Rent / PITIA
If a property rents for $2,000/month and the PITIA is $1,600/month, the DSCR is 1.25. That means the rent covers the debt service with 25% to spare.
Most lenders want a minimum DSCR between 1.0 and 1.25. A ratio of 1.0 means the rent exactly covers the payment, nothing more. Some lenders will go as low as 0.75, but you'll pay for it with higher rates and larger down payments.
Current Requirements in 2025
Here's what you're looking at with most DSCR lenders right now:
| Requirement | Typical Range | Notes |
|---|---|---|
| Minimum DSCR | 1.0 - 1.25 | Lower ratios mean higher rates |
| Credit Score | 660 - 700+ | Some go down to 620 with tradeoffs |
| Down Payment | 20% - 25% | 30%+ for lower DSCR or credit |
| Loan Amounts | $100K - $2M+ | Higher available for strong deals |
| Property Types | 1-4 units | Non-owner occupied only |
Rates currently run mid-6% to low-7% for well-qualified borrowers. That's higher than conventional rates, but you're paying for the flexibility of skipping income documentation.
How Lenders Calculate Your DSCR
Lenders don't just take your word for what the property will rent for. They'll typically use one of these methods:
For existing rentals: They'll want to see the current lease. If you're buying a property with tenants in place, the existing rent becomes your baseline.
For vacant properties: They'll order a rent schedule as part of the appraisal. The appraiser compares your property to similar rentals in the area and provides a market rent estimate.
For short-term rentals: This gets trickier. Some lenders use 75% of projected Airbnb income, others won't touch STRs at all. If you're buying for short-term rental, confirm the lender's policy before you get too far.
The PITIA calculation includes:
Some lenders add a vacancy factor or property management fee to their calculation even if you self-manage. This affects your ratio, so ask upfront.
Credit Score Tiers and What They Mean
Your credit score matters less than with conventional loans, but it still affects your terms significantly.
740+: You'll get the best rates and can potentially go higher leverage (lower down payment). This is where you want to be.
700-739: Solid options available. You might pay 0.25% - 0.5% more in rate compared to top tier, but most loan programs are open to you.
660-699: This is the cutoff for many DSCR lenders. Expect to put more down (25%+) and pay higher rates. Some lenders also require a higher DSCR ratio.
620-659: Limited options. You'll need compensating factors like a higher DSCR (1.25+), larger down payment (30%+), or significant reserves. Not all lenders will work with this score range.
Reserve Requirements
Unlike conventional loans where you might need 2 months of reserves, DSCR lenders typically want 6-12 months of PITIA payments sitting in an account. Some want this per property, others look at your total portfolio.
For a $1,600/month PITIA, that's $9,600 to $19,200 in reserves. This can add up fast if you're scaling a portfolio.
Reserves can usually be:
A Worked Example
Let's say you're looking at a duplex listed at $285,000. Each unit rents for $1,100/month, so gross rent is $2,200/month.
You're putting 25% down ($71,250), borrowing $213,750. At a 7% interest rate on a 30-year term, principal and interest runs about $1,422/month.
Add in:
Total PITIA: $1,872/month
DSCR calculation:
> $2,200 / $1,872 = 1.175
That's a 1.175 DSCR. Most lenders will approve this, though you're slightly below the 1.25 that gets you the best terms. You might see a rate bump of 0.125% - 0.25% compared to a 1.25+ deal.
If the numbers were tighter, say the property only rented for $1,900 total:
> $1,900 / $1,872 = 1.015
Now you're barely at 1.0, and some lenders won't touch it. Others will, but expect a higher rate and possibly a larger down payment requirement.
What About Properties That Don't Hit 1.0?
Yes, some lenders offer "no-ratio" or sub-1.0 DSCR loans. These exist for investors buying in appreciation markets where rents don't cover the full payment.
I'd be cautious here. If you need a loan product designed for negative cash flow properties, you're betting entirely on appreciation. That bet has worked in some markets, but it's speculation, not investing. You're also paying premium rates (often 7.5%+) for the privilege of losing money monthly.
There are situations where it makes sense, maybe a value-add deal where rents will increase significantly after renovations. But go in with eyes open about the risk.
The Loan Process
DSCR loans typically close faster than conventional because there's less documentation to verify. Here's what to expect:
Documentation you'll need:
Documentation you won't need:
Timeline is usually 21-30 days to close, sometimes faster. The bottleneck is typically the appraisal and rent schedule.
LLCs and Entity Ownership
One advantage of DSCR loans: most lenders will close in an LLC. Conventional loans require personal ownership, which means transferring to an LLC after closing (potentially triggering due-on-sale clauses, though rarely enforced).
With DSCR, you can buy directly in your entity. This provides liability protection from day one. Some lenders require a personal guarantee anyway, but the property title stays in the LLC.
If you're buying in an entity, you'll need:
Common Mistakes to Avoid
Overestimating rent: Don't assume you'll get top-of-market rent. Lenders use market rent estimates, but if you're being aggressive in your projections, you might be disappointed when the appraiser's number comes back lower. Run your numbers using conservative rent estimates before committing.
Ignoring the rate impact of a low DSCR: The difference between a 1.1 and 1.25 DSCR might only cost you $50-100/month in extra interest, but that adds up over the loan term. Sometimes putting an extra $10,000 down to improve your ratio saves money long-term.
Not shopping lenders: DSCR lending is competitive. Rates and terms vary significantly between lenders. Get quotes from at least three before committing. One might offer 6.75% where another quotes 7.25% for the same deal. On a $200,000 loan, that's nearly $100/month difference.
DSCR Loans vs. Other Options
How do these compare to alternatives?
Bank statement loans: These use 12-24 months of business or personal bank statements to calculate income. Better rates than DSCR if you can qualify, but more documentation and doesn't work for everyone.
Hard money/bridge loans: Short-term, high-rate loans for fix-and-flip or bridge situations. Not for long-term holds.
Conventional with gift funds: If you have family willing to gift a down payment and can show income on paper, conventional still beats DSCR on rate.
Portfolio lenders: Local banks sometimes offer investor-friendly terms. Worth checking, especially for larger portfolios.
For most self-employed investors buying rental properties, DSCR offers the best combination of reasonable rates and minimal documentation hassle.
Running Your Own Numbers
Before you talk to lenders, know where you stand. Calculate the DSCR on any property you're considering and figure out if it hits the 1.0-1.25 threshold most lenders want.
You can model different scenarios using RentalCalcs' [single-family calculator](/tools/single-family). Input the purchase price, rent, expenses, and see how different down payment amounts affect your cash flow and ratios.
Understanding your numbers before you apply saves time. You'll know immediately if a property works for DSCR financing or if you need a different strategy.
For more details on DSCR loan programs and current requirements, [Griffin Funding's guide](https://griffinfunding.com/non-qm-mortgages/debt-service-coverage-ratio-investor-loans/) provides a solid overview of what various lenders are looking for.
The bottom line: if you're self-employed or have non-traditional income, DSCR loans open doors that conventional financing keeps shut. The tradeoff is higher rates and down payments. For investors with properties that cash flow, that tradeoff often makes sense.