DSCR Loans 101: The Investor’s Guide to Cash Flow-Based Lending
If you’re a rental property investor and you’ve ever tried to qualify for a traditional mortgage, you know the drill: W-2s, tax returns, pay stubs, letters from your accountant, your third-grade report card... basically everything except your property's actual ability to generate income.
Enter DSCR loans.
Debt-Service Coverage Ratio (DSCR) loans are designed for investors who think in terms of cash flow, not corporate paychecks. If you're self-employed, own multiple properties, or simply want a financing option that makes sense for your investment strategy, this might just be your new best friend.
What Is a DSCR Loan?
A DSCR loan is a mortgage based on the income your rental property generates—not your personal income. In other words, if the property can pay for itself (and then some), that’s what matters most.
Instead of asking, "How much do you make?" a DSCR loan asks, "Can this property cover its own mortgage?"
How DSCR Is Calculated
DSCR = Gross Rental Income / Debt Obligations
Example: If a property brings in $2,500/month and the mortgage payment (including taxes and insurance) is $2,000/month:
DSCR = 2,500 / 2,000 = 1.25
That means the property generates 25% more income than what’s needed to cover the debt. Most lenders look for a DSCR of 1.0 or higher (i.e., the property at least breaks even), but the higher the ratio, the stronger the deal.
Who Qualifies for a DSCR Loan?
DSCR loans are great for:
Investors with multiple properties
Self-employed buyers with complex income
House hackers and short-term rental hosts
Anyone who prefers not to hand over every financial document they’ve ever created
What you don’t need:
W-2s
Personal tax returns
Employment verification
What you do need:
A property with solid rental income (actual or market rents)
Decent credit (typically 620+)
A down payment (often 20%+)
Pros of DSCR Loans
Fast approval (because no income docs = less underwriting drama)
Scales well for portfolio growth
Great for refinancing underperforming or underleveraged assets
Flexible ownership structures (LLCs, corps, etc.)
What to Watch Out For
Higher rates than conventional loans
Larger down payments required
Closing costs may be slightly higher
But for many investors, those trade-offs are well worth it for the speed and simplicity.
Final Thought
DSCR loans are built for investors who want financing based on cash flow, not cubicle time. If your properties perform, you can scale faster, buy smarter, and keep more of your financial life where it belongs: in your business.
Interested in using a DSCR loan to build your portfolio? Let’s talk strategy.