DSCR Loans: Buy Rentals Based on the Property's Income

A DSCR loan lets you qualify for an investment property based on how much rent it brings in, instead of your personal income. That makes it popular with self-employed investors and anyone growing a portfolio.

What DSCR means

DSCR stands for debt service coverage ratio. It compares the property's monthly rent to its monthly payment (principal, interest, taxes, insurance and any HOA).

DSCR = monthly rent ÷ monthly payment

If a home rents for $2,400 and the full payment is $2,000, the DSCR is 1.2. A ratio above 1.0 means the rent covers the payment.

What lenders usually look for

• DSCR: many lenders want at least 1.0, and the best terms often go to 1.25 or higher
• Down payment: usually at least 20%, with better pricing at 25% or more
• Credit: higher scores get better rates; requirements vary by lender
• Reserves: several months of payments in the bank
• Use: investment property only, not a home you'll live in. Many lenders let you buy in an LLC.

Requirements and rates change often and vary a lot between lenders, so compare a few.

Pros and cons

Pros

• No tax returns or W-2s needed to qualify
• You can close in an LLC
• Many lenders don't cap the number of properties you finance

Cons

• Rates are usually higher than conventional loans
• Larger down payment
• Some loans have prepayment penalties

Texas tip

Texas property taxes are high, and rentals don't get a homestead exemption. Taxes and insurance can be the difference between a DSCR of 0.9 and 1.2, so use the real numbers for the address you're considering.

Thinking about a rental? I'll pull rent comparables and help you estimate the DSCR before you make an offer. Call or text me at (512) 629-9050, or book a call.

Trina Heinmiller
Team Lead | Southern Luxe Group | eXp Realty

Investor Guide 2 of 10: DSCR loans
← Guide 1: Investing in Texas Real Estate · Next: Analyze a rental property (coming Oct 29)

This post is general information, not financial advice.