DSCR Loan
A DSCR loan is an investment-property mortgage underwritten on the property's debt-service coverage ratio — its rental income divided by its loan payment — instead of the borrower's personal income or tax returns.
DSCR = monthly rental income ÷ monthly debt service (principal, interest, and often taxes and insurance). A DSCR of 1.0 means the rent exactly covers the payment; most lenders want roughly 1.1–1.25 or better, and price the rate by how much cushion the ratio shows.
Because qualification rides on the deal rather than the borrower's W-2, DSCR loans are popular with self-employed investors and with portfolio builders who have strong deals but complex personal income. They typically carry somewhat higher rates and down payments (often 20–25%) than conventional owner-occupied loans.
Worked example
A rental produces $2,000/month. The proposed loan payment (with taxes and insurance) is $1,600/month. DSCR = $2,000 ÷ $1,600 = 1.25 — comfortably above the typical 1.2 threshold, so the deal qualifies on its own income.
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