What Is a DSCR Loan? Complete 2026 Guide
A DSCR loan is a mortgage for investment properties where the lender qualifies the deal based on the property's rental income, not the borrower's W-2 or tax returns. If the rent covers the mortgage, you qualify.
How DSCR Is Calculated
DSCR = Monthly Rent / PITIA (principal, interest, taxes, insurance, HOA). A DSCR of 1.25 means your rent exceeds the payment by 25%. Below 1.0, most lenders decline the deal.
Typical DSCR Requirements by Lender
Standard non-QM lenders require a minimum 1.0 DSCR. Conservative lenders want 1.25. Insource Funding offers no-DSCR purchase loans up to 80% LTV, meaning no rental income requirement.
DSCR Loan Pros and Cons
Pros: no tax returns, close in an LLC, no property count limit, 30-year fixed terms. Cons: higher rates than conventional (1-3% more), prepayment penalties, 20-25% down payment required.
DSCR vs Conventional Loans
Conventional loans are cheaper for your first 1-4 properties. By property 5-6, DTI constraints make conventional lending difficult. By property 10, it is off the table entirely.
DSCR Loans for LLCs
DSCR loans close directly in the LLC. The LLC is the borrower. You sign as the managing member. The property stays in the entity from day one for liability protection and tax purposes.
When DSCR Kills a Deal
DSCR loans fail for three common reasons: vacant properties, below-market leases, and new purchases with no rental history. In all cases, a no-DSCR loan solves the problem.
The No-DSCR Alternative
If your deal does not hit a 1.0 DSCR, you do not need a different property. You need a different lender. No-DSCR loans underwrite based on appraised value and borrower equity instead of rental income.
DSCR Loans by State
Top DSCR markets include Florida, Texas, Georgia, and North Carolina. Insource Funding lends in 44 states.
FAQ
What credit score do I need for a DSCR loan?
Most DSCR lenders require a 660+ credit score. Some go as low as 620 with a lower LTV.
Can I close a DSCR loan in an LLC?
Yes. DSCR loans are designed for entity closings. Most investors close in an LLC or land trust.
What is a good DSCR ratio?
A DSCR of 1.25 or higher is considered strong. A 1.0 means break-even.
Can I get a DSCR loan with no money down?
No. DSCR loans typically require 20-25% down for purchases.
How long is the seasoning period before I can refinance?
Most require 6 months for rate-and-term, 6-12 months for cash-out.
DSCR loan vs conventional, which is better for my 6th property?
DSCR loans skip personal income entirely and have no property count cap.
Do DSCR loans have prepayment penalties?
Yes, typically 3-5 year lockout structured as 5-4-3-2-1 or 3-2-1.
Can I use a DSCR loan for a short-term rental?
Some lenders accept STR income with 12 months of documented history.