Question 1

What is a DSCR loan?

Accepted Answer

A DSCR (Debt Service Coverage Ratio) loan is an investment property mortgage that qualifies based on the property's rental income rather than the borrower's personal income. If the property's rental income covers the mortgage payment and expenses, it can qualify — making DSCR loans popular with real estate investors who may not show high W-2 income.

Question 2

What DSCR ratio do lenders require?

Accepted Answer

Most DSCR lenders require a minimum ratio of 1.0 to 1.25. A DSCR of 1.0 means the rental income exactly covers the debt payments. A DSCR of 1.25 means rental income exceeds debt payments by 25%. Some lenders offer programs below 1.0 DSCR with higher down payments and rates.

Question 3

How do you calculate DSCR?

Accepted Answer

DSCR is calculated by dividing the property's gross rental income by the total monthly debt service (PITIA — principal, interest, taxes, insurance, and association dues). For example, if monthly rent is $2,500 and PITIA is $2,000, the DSCR is 1.25.

Question 4

What are typical DSCR loan terms?

Accepted Answer

DSCR loans typically require 20-25% down payment, offer 30-year fixed or adjustable rates, and have interest rates 1-2% higher than conventional loans. Most programs require a minimum credit score of 660-680 and allow financing for 1-4 unit investment properties.

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