How does a DSCR loan work?

A DSCR loan qualifies the property instead of you. The lender divides the monthly rent by the full monthly payment, including taxes, insurance and HOA, and approves the loan if the ratio clears its minimum, usually 1.0 to 1.25. No tax returns, W-2s or debt-to-income calculation are involved.

Rent comes from the lease or the appraiser's market rent estimate, usually the lower. The payment is principal and interest at the note rate plus escrowed taxes, insurance and dues. A property renting for $4,000 with a $3,330 payment has a DSCR of 1.20.

Beyond the ratio, the lender checks credit, usually 620 to 680 minimum, the down payment, typically 20 to 25%, and reserves of three to six months. The loan is a 30-year fixed or adjustable, often with an interest-only option, and can close in an LLC. Because it is a business-purpose loan, prepayment penalties are common.