Debt-to-Income Ratio (DTI)

Debt-to-income ratio is a borrower's total monthly debt payments divided by gross monthly income. Conventional mortgages cap it around 43 to 50%. DSCR loans do not use it at all; they replace the borrower's income coverage with the property's rent coverage.

DTI is the reason self-employed investors and those with many financed properties struggle to qualify conventionally. Tax write-offs reduce qualifying income, and each new mortgage adds to the debt side. A borrower with strong cash flow and a low tax return can fail DTI on a property that easily covers itself.

A DSCR loan asks a different question. Instead of whether you can afford another payment, it asks whether the property can. No tax returns, W-2s or pay stubs enter the file. The trade is a higher rate, since the lender is relying on one property's rent rather than your whole balance sheet.

Further reading: Debt-to-Income Ratio (DTI) on Wikipedia.