What Is a DSCR Loan? A Plain-English Guide for Investors
A DSCR loan is an investment-property mortgage that qualifies you mainly on the property’s rental income instead of your personal income. Lenders divide the monthly rent by the monthly housing payment. If the rent covers the payment, you may qualify, even if your tax returns don’t show a big salary.
Key Takeaways
- DSCR = monthly rent ÷ monthly PITIA (principal, interest, taxes, insurance, and HOA dues).
- A DSCR of 1.0 or higher means the rent covers the payment. Many lenders look for that.
- DSCR loans are for investment properties only, not your primary home.
- They’re popular with self-employed borrowers and investors who own several rentals.
- Coastal Funding Corporation offers DSCR loans nationwide.
What Is a DSCR Loan?
Most home loans look at your debt-to-income ratio (DTI). That means your pay stubs, W-2s, or tax returns. A DSCR loan flips that around. It asks one main question: Does this property pay for itself?
Because of that, DSCR loans are usually non-QM loans. That stands for “non-qualified mortgage.” It simply means the loan follows its own guidelines instead of the standard rules used for most owner-occupied mortgages.
How Do You Calculate a DSCR?
Here’s the formula:
DSCR = Monthly rent ÷ Monthly PITIA
Let’s walk through a simple, made-up example:
- Expected monthly rent: $2,400
- Principal and interest: $1,550
- Property taxes: $250
- Homeowners insurance: $150
- HOA dues: $50
- Total PITIA: $2,000
$2,400 ÷ $2,000 = 1.20 DSCR. The rent covers the payment with 20% to spare.
If the rent were $1,800, the DSCR would be 0.90. Some lenders still work with ratios below 1.0, but terms are usually tighter.
Where Does the Rent Number Come From?
For a property that’s already rented, lenders often use the current lease. For a vacant or newly bought property, the appraiser usually estimates market rent. Some programs also consider short-term rental income. Rules vary by lender.
Who Is a DSCR Loan Good For?
DSCR loans can be a great fit if you:
- Are self-employed and write off a lot of expenses on your taxes
- Already own several rental properties
- Want to grow a portfolio without proving more personal income each time
- Want to buy through an LLC, which many DSCR programs allow
- Are refinancing a rental to pull out cash for the next purchase
What Are Typical DSCR Loan Requirements?
Every lender is different, but here’s what investors commonly see:
- Down payment: Often larger than owner-occupied loans, commonly in the 20% to 25% range
- Credit: Higher scores usually earn better pricing
- Reserves: Cash in the bank to cover several months of payments
- Prepayment penalty: Many DSCR loans have one, so ask how it works before you sign
- Property types: Typically 1-4 unit homes, condos, and townhomes; some programs go further
These are general ranges, not a quote. A loan officer can show you what fits your deal.
How Do DSCR Loans Compare With Conventional Investment Loans?
| DSCR loan | Conventional investment loan | |
|---|---|---|
| Qualifies on | Property’s rent | Your personal income (DTI) |
| Tax returns | Usually not needed for income | Usually required |
| Borrow in an LLC | Often allowed | Generally not |
| Rate | Often higher | Often lower |
If you have strong W-2 income and only one or two rentals, a conventional loan may cost less. If your taxes don’t tell the full story, DSCR may be the easier path. A broker can price both. Learn more in Mortgage Broker vs. Bank.
What’s Happening in the Market for Investors?
- More homes to choose from: The National Association of Realtors reported 1.60 million homes for sale in September 2026, up 4.6% from a year earlier, with a median of 33 days on market (via Mortgage News Daily).
- Prices still rising, slowly: The national median existing-home price was $417,500 in September 2026, up 1.3% year over year.
- Rates are elevated: Freddie Mac’s 30-year average was 7.40% the week of October 15, 2026. Higher rates make your DSCR math more important. For more on why rates move, see What Moves Mortgage Rates?
How Do I Get Started With a DSCR Loan?
- Pick a property and estimate realistic rent.
- Add up the full PITIA, including insurance and HOA dues.
- Run the DSCR math. Aim for 1.0 or higher.
- Talk to a broker who can compare DSCR lenders for you.
Frequently Asked Questions
What does DSCR stand for?
DSCR stands for debt service coverage ratio. For a rental property loan, it compares the property’s monthly rent with its monthly housing payment.
How do you calculate DSCR?
Divide the property’s monthly rent by its monthly principal, interest, taxes, insurance, and any HOA dues (PITIA). For example, $2,400 in rent divided by a $2,000 payment equals a DSCR of 1.20.
Do DSCR loans require tax returns?
Usually not for personal income. DSCR loans are qualified mainly on the property’s rental income, though lenders still check credit, assets, and reserves.
What DSCR do lenders want?
Many lenders look for a DSCR of about 1.0 or higher, meaning rent covers the payment. Some programs allow lower ratios with tighter terms. Requirements vary by lender.
Can I use a DSCR loan for my primary home?
No. DSCR loans are for investment properties, not homes you live in. For a primary residence, look at conventional, FHA, VA, USDA, or jumbo loans.
Where are DSCR loans available from Coastal Funding?
Coastal Funding Corporation offers DSCR investment-property loans nationwide.
Run the Numbers on Your Next Rental
Have a rental property in mind, anywhere in the U.S.? Call Coastal Funding Corporation at (833) 457-6500 or visit www.cfcmtg.com to talk with a licensed loan officer.
About Coastal Funding Corporation
Coastal Funding Corporation (NMLS 103035) is a mortgage broker. We compare loan options from multiple wholesale lenders for purchases and refinances on primary residences in Florida, South Carolina, and Tennessee, and we offer DSCR investment-property loans nationwide. This article was written by our team and reviewed for accuracy as of the date shown.
Coastal Funding Corporation | NMLS 103035 | 534 S. Navy Blvd, Pensacola, FL 32507 | (833) 457-6500 | www.cfcmtg.com. Equal Housing Opportunity. This is not a commitment to lend. All loans are subject to credit approval, underwriting guidelines, and property eligibility. Rates, terms, and programs are subject to change without notice. Rate and market figures cited are third-party data as of the dates shown and are not quotes or offers from Coastal Funding Corporation. Primary-residence loans offered in FL, SC, and TN; DSCR loans available nationwide. Verify our license at NMLS Consumer Access.