What is a DSCR Purchase Loan?
A DSCR (Debt Service Coverage Ratio) Loan is a real estate investment loan designed for buyers who want to qualify for financing based on a property’s rental income rather than their personal income. This loan is ideal for real estate investors who want to purchase rental properties without needing tax returns, W-2s, or personal income documentation.
DSCR loans are easier to qualify for than traditional loans, allowing investors to scale their rental portfolios faster. Instead of using a borrower’s employment income, lenders evaluate whether the property’s rental income can cover the mortgage payment—known as the Debt Service Coverage Ratio (DSCR).
How Does a DSCR Purchase Loan Work?
A DSCR Loan determines eligibility by comparing the rental income of the property to the mortgage payment. If the rental income covers or exceeds the mortgage payment, the borrower can qualify for financing without showing personal income.
Examples of How a DSCR Loan Works:
Example 1: Investor Buying a Single-Family Rental Property
A real estate investor wants to buy a $400,000 rental home. The property generates $3,000 in monthly rent, while the total mortgage payment (PITI) is $2,500 per month. The DSCR = 1.2 ($3,000 ÷ $2,500), meaning the rental income fully covers the mortgage. The borrower qualifies without tax returns or employment verification.
Example 2: Buying a Multifamily Property
An investor purchases a 4-unit apartment building for $800,000 with 20% down. The total monthly rental income is $7,500, while the mortgage payment is $6,000.The DSCR = 1.25, so the property qualifies for financing.
Example 3: First-Time Investor Using a DSCR Loan
A buyer wants to start investing in short-term rentals (Airbnb/VRBO).The lender uses projected rental income to determine qualification. With a DSCR of 1.1, the borrower secures financing with 15% down.
Qualifications for a DSCR Purchase Loan
✅Debt Service Coverage Ratio (DSCR) Requirement:
Most lenders require a DSCR of 1.0 or higher (rental income covers or exceeds mortgage payments).Some lenders offer low DSCR loans (0.75-0.99) with compensating factors.
✅Credit Score Requirements:
Minimum 620-680+ for most lenders. Higher scores (700+) may qualify for better interest rates and lower down payments.
✅Down Payment Requirements:
15%-25% down, depending on loan amount and borrower profile. Lower down payments possible for properties with high DSCR ratios.
✅Income & Employment Verification:
No tax returns, W-2s, or personal income required. Loan approval is based entirely on the property’s income potential.
✅Property Type Eligibility:
Single-family rentals, multifamily properties (2-4 units), condos, and short-term rental properties (Airbnb/VRBO) qualify. DSCR loans are not for primary residences—they must be used for investment properties.
✅Loan Amount Limits:
Loan amounts available up to $3 million+, depending on the lender.
Is a DSCR Purchase Loan Right for You?
A DSCR Loan is an excellent option for real estate investors looking to buy rental properties without using personal income to qualify. With flexible credit requirements, no income verification, and high loan limits, DSCR loans provide the ideal solution for scaling an investment portfolio.
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