DSCR Loans: What They Are, Why Investors Love Them, and How to Use One

DSCR Loans: What They Are, Why Investors Love Them, and How to Use One

You’ve been running the numbers. Cash flow looks strong, the rental market is booming, you’ve got a great property lined up. But there’s one catch: traditional lenders don’t love non-W-2 borrowers.

So, What Is a DSCR Loan?

DSCR stands for Debt Service Coverage Ratio, and it’s actually pretty simple.
It measures how much your rental income can cover your loan payments.

If your property cash flows well enough to pay for itself, you might qualify.
No tax returns. No employment verification. Just the property’s performance.

Think of it as a lender looking at your deal and asking: “Can this place pay its own bills?”
If the answer is yes, you’re halfway there.

The DSCR Formula (It’s Easier Than You Think)

Here’s the basic math:

DSCR = Net Operating Income ÷ Total Debt Payments

Let’s say:

• Your monthly rent = $2,500
• Monthly expenses (taxes, insurance, etc.) = $500
• Your proposed monthly mortgage = $1,800

Your net operating income is $2,000
So: $2,000 ÷ $1,800 = 1.11 DSCR

That means your property earns 11% more than it costs to operate. And most lenders like to see a DSCR of 1.0 or higher (some even prefer 1.25+ depending on market and risk factors).

Why DSCR Loans Are a Game-Changer for Investors

• No income verification: Great for self-employed, side-hustlers, or full-time landlords.
• Faster approvals: Underwriting focuses on property performance, not your day job.
• LLC-friendly: Perfect for real estate held under an entity.
• Portfolio growth: Easy to rinse-and-repeat for investors scaling up.

Pro Tips from the Field

Coastal Equity Group has seen borrowers use DSCR loans in creative, strategic ways. Especially when:

• Refinancing rental properties without disrupting personal finances.
• Acquiring short-term rentals in high-demand vacation markets.
• Purchasing multi-units where rents are already stabilized.

DSCR loans usually require 20-25% down and may come with slightly higher interest rates, but if the cash flow makes sense, the math still works in your favor.

Real World Example:

A first-time investor in Mount Pleasant secured a DSCR loan to purchase a duplex, living in one unit and renting the other. Their DSCR came in at 1.28—more than enough to qualify. With rising rents and a steady market, they’re already hunting for property number two.

What Lenders Look For

Even though you’re not showing pay stubs, there are a few key boxes to check:

• Good credit (680+)
• Strong rental income or lease agreements
• Clean title and appraisal
• Property condition and location

A Few Things to Watch Out For

• Prepayment penalties are common. Know your terms.
• Vacancy risks can hurt your DSCR—keep your units rented.
• Cash reserves may still be required depending on the lender.
  

The Takeaway

DSCR loans aren’t for everyone but for real estate investors who want to grow without juggling endless financial paperwork, they’re a powerful tool. If your property can carry itself, your financing shouldn’t hold you back.

Take a look at your next potential investment.
Run the numbers.
Ask yourself: Can this place pay its way?

If the answer is yes…
Well, now you know what to do next.

The next deal isn’t waiting forever. Now that you know how DSCR loans work, it might be time to see how they work for you.

How can we help you?

Please submit your information here along with a brief message.