DSCR Loan (Debt-Service Coverage Ratio)
Definition
A DSCR loan is a non-QM (non-qualified mortgage) investment-property loan underwritten on the property's Debt-Service Coverage Ratio — the gross monthly rent divided by total debt service. Unlike conventional mortgages, DSCR loans do not require the borrower to verify personal income with W-2s or tax returns.
This is the unlock for rental scaling. Once an operator exceeds 4–10 conventional mortgages, conventional lenders typically refuse new business. DSCR products step in and allow the operator to add another 10, 20, or 100 properties without a personal income paper trail. DSCR is the dominant takeout financing for BRRRR strategies for exactly this reason.
Formula
Where PITI is:
- Principal — monthly mortgage principal
- Interest — monthly mortgage interest
- Taxes — monthly property tax
- Insurance — monthly hazard insurance
DSCR is expressed as a ratio (not a percentage). DSCR of 1.0 means rent exactly covers PITI with zero buffer. DSCR of 1.25 means rent exceeds PITI by 25%.
Worked example
A renovated single-family rental projects monthly rent of $3,200. The DSCR loan amount is $360,000 at 7.5% over 30 years. Monthly principal + interest is $2,517. Property tax and insurance combined are $550/month, for a total PITI of $3,067.
This deal qualifies at most DSCR lenders' minimum of 1.0 but does not clear the 1.25 threshold for best pricing. The operator should either negotiate a lower purchase price (to reduce loan amount and PITI), raise rent assumptions to $3,840/mo (1.25 DSCR target), or accept a higher rate.
Typical DSCR loan terms (2026)
- Rate: 7.0–9.5% (FICO + LTV + DSCR-grade dependent)
- LTV cap: 70–80% rate-and-term refi, 70–75% cash-out
- Points: 1–2 typical at origination
- DSCR minimum: 1.0 to qualify, 1.25 for best pricing
- Prepay penalty: often 3–5 year stepdown (5/4/3/2/1)
- Term: 30-year amortization, fixed or 5/1 ARM
- FICO minimum: 680 typical, 660 with rate penalty
The rate-shock failure mode every BRRRR underwrite should test
The deal pencils when the DSCR rate is the rate you typed into the spreadsheet. The deal breaks when rates move 100 basis points between acquisition and refinance and the DSCR drops below 1.0 — because the lender now offers a smaller loan, prices a full point worse, or refuses outright.
Worked stress test
Base case: $360k loan at 7.5%, $2,510 P&I + $550 T&I = $3,060 PITI. Rent $3,200. DSCR = 1.05. Marginal.
+100 bps shock: rates move to 8.5%. P&I rises to $2,765; PITI is now $3,315. DSCR drops to 0.97 — below the lender's 1.0 floor. The deal no longer qualifies at the projected loan amount. The operator must either pay down loan balance, accept worse pricing, or wait for rates to ease.
Deals that pass at base case and fail at +100 bps are common Kill List flags inside DealIntel.
How DealIntel uses DSCR
DealIntel computes projected DSCR on every BRRRR-strategy and Buy-and-Hold deal at current market rates and stress-tests it at a +100 basis-point rate shock and a -10% rent shock. The Kill List flags deals where:
- Base case DSCR is below 1.10 (insufficient buffer)
- Stress-tested DSCR drops below 1.0 (refi not viable)
- LTV constraint produces refinance proceeds below 90% of all-in basis (poor capital recycle)
Try the BRRRR calculator to model the DSCR refinance scenario on a specific deal. For the full BRRRR strategy playbook see /strategies/brrrr.
Frequently asked questions
What is a DSCR loan?
A DSCR loan is a non-QM (non-qualified mortgage) investment-property loan underwritten on the property's debt-service coverage ratio — gross monthly rent divided by total debt service (principal, interest, taxes, insurance). DSCR loans do not require personal income verification, making them the dominant scaling vehicle for rental portfolios.
What DSCR do I need to qualify?
Most lenders require DSCR ≥ 1.0 to qualify at standard rates. DSCR ≥ 1.25 typically unlocks best pricing (50–100 bps better). Some lenders will go below 1.0 with a rate or LTV penalty. DealIntel underwrites BRRRR deals at a stress-tested DSCR ≥ 1.10 to survive a 10% rent shock.
How is DSCR calculated?
DSCR = Gross Monthly Rent / Monthly PITI. PITI is Principal + Interest + Taxes + Insurance. A property renting at $3,200/mo with $2,510 PITI has DSCR of 1.27. The cleaner the rent assumption, the more defensible the ratio.
What rates do DSCR loans charge?
DSCR loan rates in 2026 typically run 7.0–9.5% depending on FICO, LTV, DSCR ratio, and prepayment structure. Higher DSCR + higher FICO + lower LTV + longer prepay penalty = lower rate. Prepay penalties are typically 3–5 year stepdown (5/4/3/2/1).
How is a DSCR loan different from a conventional loan?
Conventional loans require personal income paper (W-2s, tax returns, debt-to-income calculations). DSCR loans qualify on the property's rental income only. This makes DSCR the only practical product for high-volume rental scaling — once you exceed 4–10 conventional mortgages, conventional lenders typically refuse new business.
Can I use a DSCR loan for a primary residence?
No. DSCR loans are investment-property only. Owner-occupied properties require conventional, FHA, VA, or jumbo loans. Trying to use DSCR for a primary residence is mortgage fraud and triggers the due-on-sale clause.
What is the maximum LTV on a DSCR loan?
Typical maximum is 70–80% on a rate-and-term refinance and 70–75% on a cash-out refinance. Acquisitions cap around 75–80% LTV. Lower LTV (under 65%) unlocks the best pricing tier. Each lender publishes its own LTV grid by FICO + DSCR.
What happens if DSCR drops below 1.0 after acquisition?
Nothing happens immediately — the loan remains in force at its original rate and terms. But you cannot refinance, sell to a new investor, or pull cash-out at favorable terms until DSCR recovers. This is why stress-testing DSCR at +100 bps and -10% rent before underwriting matters.
Related terms
DealIntel stress-tests every BRRRR deal at +100 bps rate shock and -10% rent shock. Deals that pass base case but fail under stress are flagged before you commit.
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