Collateral

Collateral is an asset a borrower pledges to a lender, which the lender can take and sell if the loan is not repaid. On a DSCR loan the collateral is the rental property itself, and its rent is also what qualifies the loan.

That double role explains how DSCR lenders underwrite. The appraisal values the collateral and sets the loan-to-value limit. The rent schedule on the same property sets the ratio. Both have to clear the lender's thresholds, and the stricter of the two sets the loan amount.

A lender with strong collateral and a solid ratio can accept less information about the borrower, which is why DSCR loans skip income documentation. The pledge is recorded through a mortgage or a deed of trust, depending on the state.

Further reading: Collateral on Wikipedia.