If you're a real estate investor, you've probably heard about DSCR loans. They're becoming increasingly popular because they don't require traditional income verification—no tax returns, no W-2s, no pay stubs. But how do they actually work? And are they right for you? Let's break it down.
What is a DSCR Loan?
DSCR stands for Debt Service Coverage Ratio. It's a loan program that qualifies you based on the rental income of the property you're buying, not your personal income. Instead of looking at your W-2s and tax returns, lenders calculate whether the property's rental income can cover the mortgage payment.
The Formula: DSCR = Net Rental Income ÷ Monthly Mortgage Payment
Most lenders require a DSCR of 1.0 to 1.25, meaning the rental income should cover 100% to 125% of the mortgage payment.
How DSCR Loans Work
Traditional Loans vs. DSCR Loans
- Qualify based on personal income (W-2s, tax returns)
- Look at debt-to-income ratio
- Limit number of properties you can own
- Require extensive personal financial documentation
- Qualify based on property's rental income
- Don't look at personal debt-to-income ratio
- No limit on number of properties
- Minimal personal financial documentation
The Qualification Process
1. Property Analysis: Lender evaluates the property's rental potential 2. Rental Income Verification: Uses market rents or existing leases 3. DSCR Calculation: Ensures rental income covers mortgage payment 4. Credit Check: Still requires good credit (typically 680+) 5. Down Payment: Usually 20-25% for investment properties
Who Are DSCR Loans For?
Ideal Candidates
1. Real Estate Investors: Building or expanding a rental portfolio 2. Self-Employed Borrowers: Complex tax returns that don't show true income 3. High-Income Earners: Maxed out on traditional loans due to DTI limits 4. Experienced Investors: Multiple properties, want streamlined process 5. Business Owners: Take minimal salary, income comes from business
Not Ideal For
1. First-Time Investors: May not have experience managing rentals 2. Low Credit Scores: Still need good credit (680+ typically) 3. Low Down Payment: Need 20-25% down, not 3-5% 4. Primary Residence: DSCR loans are for investment properties only
Key Benefits of DSCR Loans
1. No Income Verification
- Tax returns
- W-2s
- Pay stubs
- Bank statements (for income verification)
- Employment verification
Why this matters: If you're self-employed, write off a lot on taxes, or have complex income, traditional loans can be difficult. DSCR loans solve this problem.
2. Unlimited Properties
Traditional loans often limit you to 4-10 properties. DSCR loans have no limit, so you can build a large portfolio.
3. Faster Approval Process
With less documentation required, DSCR loans can close faster—often in 2-3 weeks instead of 4-6 weeks.
4. Close in LLC or Business Name
Many DSCR lenders allow you to close in your business entity's name, providing asset protection and tax benefits.
5. Flexible Terms
- 30-year fixed
- 5/1, 7/1, 10/1 ARMs
- Interest-only options
- Balloon payments
Understanding DSCR Requirements
Minimum DSCR Ratios
- 1.0 DSCR: Rental income exactly covers mortgage payment (minimum)
- 1.25 DSCR: Rental income covers 125% of payment (preferred)
- 1.5+ DSCR: Best rates and terms
- 1.0 DSCR = Need $2,000/month rent
- 1.25 DSCR = Need $2,500/month rent
- 1.5 DSCR = Need $3,000/month rent
How Rental Income is Calculated
Lenders use one of these methods:
1. Existing Lease: If property is already rented, use current rent 2. Market Rent Analysis: Appraiser determines fair market rent 3. Rent Roll: For multi-unit properties, sum of all unit rents
Important: Lenders typically use 75% of gross rent to account for vacancies and expenses.
DSCR Loan Requirements
Credit Score
- Minimum: 680 (some lenders go as low as 660)
- Preferred: 720+ for best rates
- Impact: Lower credit = higher rates and stricter DSCR requirements
Down Payment
- Typical: 20-25% for investment properties
- Jumbo loans: May require 25-30%
- First investment property: Might require 25%+
- Multiple properties: 20-25% typically
Property Types
- Single-family rentals
- Multi-family (2-4 units)
- Condos and townhomes
- Some commercial properties
- Raw land
- Fix-and-flip properties (different loan type)
- Owner-occupied properties (use traditional loans)
Loan Amounts
- Conforming: Up to $1,149,825 (Orange County limit for 2026) - Check current FHFA conforming loan limits
- Jumbo: Above conforming limits
- Maximum: Varies by lender, some go up to $5M+
Costs and Rates
Interest Rates
- 0.5% to 1.5% higher than owner-occupied rates
- Vary based on: Credit score, DSCR ratio, loan amount, property type
- Current range: 7% to 9%+ (as of January 2026)
Why higher rates?: Investment properties are riskier for lenders, so they charge more.
Fees and Costs
- Origination fees: 1-2% of loan amount
- Appraisal: $500-$1,500
- Title insurance: $1,000-$3,000
- Other standard closing costs
The Application Process
Step 1: Pre-Qualification
- Credit check
- Discuss property and loan amount
- Get estimated rate and terms
- Usually takes 1-2 days
Step 2: Property Under Contract
- Submit purchase agreement
- Property address and details
- Expected rental income
Step 3: Property Analysis
- Appraisal ordered
- Rental income analysis
- DSCR calculation
- Property condition review
Step 4: Underwriting
- Credit review
- Property evaluation
- DSCR verification
- Final approval
Step 5: Closing
- Sign documents
- Fund loan
- Get keys
Common DSCR Loan Scenarios
Scenario 1: Self-Employed Investor
Situation: Business owner with $200K+ income but writes off everything on taxes, shows minimal taxable income.
Solution: DSCR loan qualifies based on property rental income, not personal income. Can buy multiple properties without hitting DTI limits.
Scenario 2: Building a Portfolio
Situation: Already own 4 properties with traditional loans, hit conventional loan limits.
Solution: DSCR loans have no property limit, can continue building portfolio.
Scenario 3: Quick Closing Needed
Situation: Found great deal, need to close in 2 weeks.
Solution: DSCR loans can close faster with less documentation.
DSCR Loan vs. Other Investment Loans
DSCR vs. Traditional Investment Loans
DSCR: Qualify on property income, no personal income needed, unlimited properties Traditional: Qualify on personal income, limited properties, more documentation
DSCR vs. Hard Money Loans
DSCR: Lower rates, longer terms, more stable Hard Money: Higher rates, shorter terms, faster closing, more flexible
DSCR vs. Portfolio Loans
DSCR: Standardized process, competitive rates Portfolio: Lender-specific terms, may have more flexibility
Tips for Getting Approved
1. Choose the right property: Properties with strong rental potential get better terms 2. Improve your credit: Better credit = better rates 3. Have reserves: Lenders like to see cash reserves (6-12 months payments) 4. Work with experienced lender: DSCR loans are different, need someone who understands them 5. Be realistic about rent: Don't overestimate rental income
The Bottom Line
DSCR loans are a powerful tool for real estate investors. They offer flexibility, speed, and the ability to build large portfolios without traditional income verification. If you're an investor looking to expand your portfolio, DSCR loans might be the perfect solution.
At Enzo Maldini, we specialize in DSCR loans for Orange County investors. We understand the process, know the lenders, and can help you get the best terms for your investment properties.
Ready to explore DSCR loans for your next investment? Learn more about DSCR loans, visit our investment property landing page, or get pre-approved for your next property. Check out Orange County market trends to find the best investment opportunities.