Investment property loans are for buying or refinancing a property you'll rent out, not live in. A DSCR (debt service coverage ratio) loan is a business-purpose loan that qualifies mainly on whether the property's rent covers its monthly costs, instead of your personal income. It can fit self-employed investors, people with several rentals, and anyone whose tax returns don't tell the whole story. DSCR loans usually need a larger down payment, cash reserves, and often carry higher rates and prepayment terms than a home you live in. A home you or your family will live in isn't a DSCR loan.
Note: Availability
A lot of real estate investors have tax returns that undersell them. That's not a knock on them. It's often what good tax planning looks like. But it can make a traditional mortgage hard to get, because a traditional loan cares about your personal income.
A DSCR loan looks at the property instead. Does the rent cover the payment? That's the main question. This page explains how investment property loans and DSCR loans work, who they fit, and what to expect.
Investment property financing can fit:
DSCR stands for debt service coverage ratio. In plain words, it's the property's monthly rent divided by its monthly housing costs.
The monthly costs usually include:
If the rent equals those costs, the ratio is 1.0. If the rent is more than the costs, the ratio is above 1.0, and the property is said to "cash flow." If the rent is less, the ratio is below 1.0.
Lenders set a minimum ratio for each program. A higher ratio generally means better terms. Some programs allow a ratio below 1.0, usually with a bigger down payment or other tighter terms. We'll show you the current requirements for your property.
Depending on the lender and the property, the rent can come from:
With a traditional investment property loan, the lender looks at your personal income and debts, just like any mortgage, and counts part of the expected rent as income. If your income is easy to document and strong, this can mean a better rate than a DSCR loan. As a broker, we'll compare both.
DSCR lenders commonly accept:
Larger apartment buildings and mixed-use properties are usually a different kind of commercial loan.
We'll give you the current numbers for your situation from the lenders we work with.
Many DSCR lenders let you close in the name of an LLC or other business entity, usually with a personal guaranty from the owners. Talk with your attorney or CPA about whether an LLC makes sense for you. We'll work with whatever structure they recommend, within the lender's rules.
You'll receive a written estimate of your loan terms and costs before you commit.
DSCR loans can be used to refinance an existing rental, either to lower your payment or to take cash out for your next property. Some investors use cash-out refinances to grow a portfolio over time. Lenders usually limit how much you can take out compared with the property's value.
A business-purpose loan for investment property that qualifies mainly on whether the rent covers the property's monthly costs, instead of your personal income.
Usually not in the traditional way. The focus is the property's rent. Your credit, assets, and reserves still matter.
A ratio of 1.0 means the rent covers the costs. Higher is better, and lenders set their own minimums. We'll tell you where your property lands.
Some lenders allow it, often using short-term rental history or market data for the rent.
No. DSCR loans are for investment property you won't live in. If you plan to live there, we'll help you with a different loan.
Often yes, usually with a personal guaranty.
See the availability notice at the top of this page. We confirm what's available for your property before you apply.
Tell us about the property, the rent, and your plans. We'll confirm what's available for that property and compare a DSCR loan with a traditional investment loan. Get a DSCR quote, or call us at 530-888-6000.
