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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