DSCR Loans · 2 min read
DSCR Loan Requirements: How to Qualify
DSCR loan requirements explained: debt service coverage ratio, down payment, credit, reserves, property type and documents.
This guide is part of our DSCR & Long-Term Rental Loans hub.
A DSCR loan qualifies a rental property on its own income instead of your tax returns. That makes it a popular long-term financing option for investors who are self-employed, own several properties or want to close in an LLC. Here is what lenders typically require.
Debt service coverage ratio
The core requirement is the ratio itself: the property’s rent divided by its monthly housing payment. Many lenders look for a DSCR of 1.0 to 1.25 or higher, and better ratios usually earn better pricing. Some programs allow ratios below 1.0 with more down payment. See how to calculate DSCR.
Down payment and loan-to-value
Purchases commonly require 20% to 25% down. Rate-and-term refinances and cash-out refinances have their own LTV limits, and cash-out limits are usually lower.
Credit score
DSCR programs generally have minimum credit scores, often in the 600s, with the best terms reserved for higher scores. Recent late payments, foreclosures or bankruptcies can affect eligibility.
Reserves
Lenders typically want several months of the property’s payment in reserves after closing. Larger loans and multiple financed properties can increase the requirement.
Property requirements
- One- to four-unit residential rentals are the most common. Some programs cover condos, short-term rentals and small multifamily.
- The property must be in rentable condition. Heavy rehabs are usually financed first with a hard money loan.
- An appraisal with a rent schedule establishes market rent when there is no lease in place.
Documents you’ll usually need
- Lease agreements or a market rent estimate
- Bank statements for down payment and reserves
- Entity documents if closing in an LLC
- Insurance quote and property details
- Purchase contract or current mortgage statement
Common deal-killers
- Rent that does not cover the payment, taxes and insurance at the required ratio.
- High property taxes or insurance in certain markets, which reduce DSCR.
- Not enough seasoning on a recent purchase when refinancing. See the BRRRR refinance guide.
Related guides
Explore the full hub: DSCR & Long-Term Rental Loans. Other financing: Fix and Flip & Hard Money Loans · Commercial Real Estate Loans · Unsecured Business Loans · Trust Deed Investing.
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Terms, leverage and timelines vary by lender, property and borrower qualifications. This article is general information, not financial, legal or investment advice, and not a commitment to lend.