# DSCR loans: buying rentals on the property's income, not yours

Source: https://nobullshitloans.com/loans/dscr/
By Tyler Rood, Loan Officer, NMLS ID # 2064776, Edge Home Finance, LLC (NMLS ID # 891464). Updated 2026-11-09.

## The short answer

A DSCR loan qualifies an investment property on its rent instead of your personal income. The lender divides market rent by the full payment (principal, interest, taxes, insurance and any HOA dues), and most programs want 1.0 or higher: $2,500 of rent on a $2,000 payment is a 1.25 DSCR. In my files, expect 20% to 25% down and a rate roughly 1 to 2 percentage points above a conventional investment loan, so I run conventional first.

You found a rental that works on paper, but your tax returns, your debt ratio or your plan to hold it in an LLC keep a regular loan out of reach. That's what a DSCR loan is for. It's the original rent loan: the lender qualifies the property on its rent, not you on your paycheck. Here's the ratio with real numbers, what it costs, and the order I'd use it in.

## What is a DSCR loan, and who is it for?

DSCR stands for debt service coverage ratio: the property's rent compared with its payment. A DSCR loan is a non-QM investor loan, meaning it sits outside the standard rules conventional, FHA and VA loans follow. On DSCR, I don't care what your debts are or how much money you make. I care what your credit score is, and I care about the property you're buying.

It fits investors who:

- carry a high debt-to-income ratio from other loans;
- are self-employed, with write-offs that shrink their returns (see the [self-employed loan options](https://nobullshitloans.com/loans/self-employed/));
- want the property in an LLC from day one;
- have used up what their income can carry on conventional loans.

It's built for buy-and-hold, not flips. And it doesn't skip the basics: you still need real cash, decent credit, reserves and rent that covers the payment.


**DSCR loans at a glance**

- Ratio most programs want: 1.0 or higher (rent divided by the full payment; some lenders go as low as 0.75, at a higher price and on a smaller loan)
- Down payment: 20% to 25% (or more, where most deals land; the most leverage I've seen is 15% down, as of November 2026)
- Cash to close: About 25% (of the price, my quick-math planning rule)
- Reserves: About 6 months (of the full payment in the programs I've seen; my own rule is about a year per rental)
- Rate vs conventional: 1 to 2 points (percentage points above a conventional investment loan, roughly, in my files through 2026)
- Smallest loan: $100,000 (some lenders won't go under it)


## How the debt service coverage ratio works on a mortgage

The math is one division: monthly rent divided by the full monthly payment. Most DSCR lenders use gross rent, before expenses, against the whole payment: principal, interest, taxes, insurance and any HOA dues. On a purchase, the rent usually comes from the appraiser's rent schedule (Form 1007 on a single-family home), which compares your property with nearby rentals. On a refinance, some lenders use the lower of that market rent or your current lease.

At 1.0 the rent equals the payment, and most programs want at least that. Some lenders go as low as 0.75 ($1,500 of rent on a $2,000 payment), at a higher price and on a smaller loan. Here's the whole calculation at an example rate of 7.5%. That's a point above the 6.5% I use for conventional, because DSCR pricing runs higher.

**Worked example: DSCR on a $300,000 Chesterfield County rental, 20% down**
- Principal and interest on $240,000 at an example rate of 7.5%: $1,678
- plus Property tax at the 2026 rate of $0.89 per $100: $223
- plus Homeowners insurance: $125
- equals: Full monthly payment: $2,026
- Market rent from the appraiser's rent schedule: $2,300
- ÷ Full monthly payment: $2,026
- equals: DSCR: 1.14
Note: In the City of Richmond, at $1.20 per $100, the tax is $300 a month, the payment $2,103 and the ratio 1.09.
_Hypothetical, rounded. Tax figured on a $300,000 assessment. No HOA._


**Watch out**
A 1.0 ratio means the rent covers the payment. It does not mean the property makes money. Vacancy, repairs, turnover and management all come out of the same rent, and the lender's math ignores them.


## When the rent comes up short, the loan shrinks

Near 1.0, the lender usually doesn't say no. It shrinks the loan until the payment fits the rent, and the difference becomes extra cash you bring.

**Worked example: Same house, but the rent schedule comes in at $1,950 and the lender needs 1.0**
- Highest full payment the rent supports: $1,950
- minus Property tax: $223
- minus Homeowners insurance: $125
- equals: Highest principal and interest: $1,602
Note: At an example rate of 7.5%, $1,602 a month carries about $229,100 of loan, not $240,000. You bring about $10,900 more, or you negotiate the price.
_Hypothetical. At this example rate, every $100 a month of rent carries about $14,300 of loan._


So the price you pay matters more on a DSCR deal than on a home you'll live in. If the ratio still won't work, each fix costs something. More down lowers the payment. A lower price does the same and keeps the money yours. Programs that go below 1.0 or skip the ratio entirely charge a higher rate and lend less. Sometimes the honest answer is that it's the wrong property at that price.

## DSCR loan requirements: down payment, credit and reserves

**Down payment.** I pitch 20% down. As of November 2026, the most leverage I've seen on a DSCR purchase is 85% loan-to-value, or 15% down, and most deals land at 20% to 25% or more. You'll hear about 10% down. I haven't seen it lately, and I wouldn't tell anybody to do it anyway.

**Cash to close.** For quick math, I plan on 25% of the price.

**Worked example: Cash to plan for on a $300,000 rental**
- Down payment (20%): $60,000
- plus Closing costs, prepaids and lender fees: $15,000
- equals: Plan to bring about 25% of the price: $75,000
Note: Reserves sit on top of this, in the bank after closing.
_My quick-math planning rule, not a quote. Real costs vary by lender, rate and county._


**Credit.** It moves the price, but a top score helps less than people expect. The ratio and the down payment move it more.

**Reserves.** Lenders want cash in the bank after closing, counted in months of the full payment, and the programs I've seen land around six months. My own rule for landlords is bigger: about a year of payments per rental, because a vacancy and a major repair can land in the same quarter. A HELOC on your home can hold part of that cushion, but lenders won't count an unused line as reserves.

**Documents and fine print.** Expect a month or two of bank statements, the appraisal with its rent schedule, and proof of insurance. Buying in an LLC adds the operating agreement, articles of organization and a certificate of good standing. Some lenders won't go under a $100,000 loan, and some have extra rules for first-time investors. You'll also sign a business-purpose and occupancy statement saying you won't live there. Mean it.

## What DSCR loans cost compared with conventional

No mortgage insurance means the price carries the risk: the higher the risk, the more you give the bank up front. In my files through 2026, DSCR rates have run roughly 1 to 2 percentage points above a conventional investment loan. Strong borrowers at low loan-to-value priced much closer, and thin ratios with 15% down sat at the top of the range.

**Worked example: Same $240,000 loan, two ways**
- DSCR loan at an example rate of 7.5%: $1,678
- minus Conventional investment loan at an example rate of 6.5%: $1,517
- equals: What the easier loan costs: $161 a month
Note: About $3,900 over two years, before any difference in fees.
_Principal and interest only. Hypothetical example rates, not a quote._


Before you sign, get every fee in writing and ask what the broker is paid, because points on investor loans vary a lot. Ask whether there's a prepayment penalty and for how long. Many DSCR loans charge one for paying off or refinancing in the first few years, where state law allows it, and that matters if you plan to refinance. And ask whether the lender adds a charge for an LLC. Some do.


**Conventional investment loan vs DSCR loan** Conventional takes more paperwork but costs less; DSCR is the easiest loan to close, and easy isn't cheap.

| | Conventional investment loan | DSCR loan |
|---|---|---|
| Qualifies on | Your income and debt-to-income ratio | The property's rent against the full payment |
| Paperwork | More | Your credit, the property and its rent, plus your cash and bank statements |
| Payment on a $240,000 loan | $1,517 at an example rate of 6.5% | $1,678 at an example rate of 7.5% |
| Mortgage insurance | Under 20% down, even on a rental | None; the price carries the risk |
| Closes in | Your personal name | Your name or an LLC's |
| Financed properties | Up to ten on a Fannie Mae loan with an automated approval, counting the one you're buying | Many programs don't use that count |

_Principal and interest only. Hypothetical example rates, not a quote._


## Conventional first, DSCR as the fallback

My order for buying rentals: we go QM, meaning a standard conventional loan, until you can't go QM anymore. Then we go to DSCR. A [conventional investment loan](https://nobullshitloans.com/loans/conventional/) takes more paperwork, but it's cheaper, and on your first one or two rentals the difference is real money. If someone points a first-time investor straight to DSCR, ask why. It's the easiest loan to close, and easy isn't cheap.

1. I build a conventional pre-approval first, sized to the middle of your price range.
2. The first one or two rentals go conventional with about 20% down. Plan to carry each new payment on your own income at first, since how much of a new rental's rent counts depends on the program and your landlord history.
3. When your income can't carry the next one, the next rentals go DSCR. If your ratios have room for two more conventional loans and the plan is four rentals, two go conventional and two go DSCR.
4. While you're on DSCR, keep the points low and accept the higher rate.
5. Once the rentals show on your tax returns, a year at minimum and ideally two, we look at refinancing the DSCR loans into conventional.


Why 20%? You can go lower on a single-family rental, but then you're paying mortgage insurance on a rental. You don't want to pay PMI on an investment property. I promise. The one reason to skip the conventional step is being 100% committed to an LLC from day one.

**My take**
Date the rate on a DSCR loan. Don't [buy points](https://nobullshitloans.com/buy/points-and-buydowns/) on a loan you plan to refinance in a year or two. Take the beating for the time being, then move to conventional when your returns support it.


## Before you buy a rental: owner-occupied plays come first

You don't buy investment properties raw. By raw I mean a straight investment purchase: investor down payment, investor pricing, and a payment you carry on your own income until the rent proves itself. That makes sense mainly when your debt-to-income ratio is low enough that the new payment fits even if the place sits empty for a few months. Most people build doors faster and cheaper with a home they actually live in:

- **Live in one unit of a 2 to 4 unit building.** Owner-occupant financing, plus rent from the other units. Here's [how house hacking with 2 to 4 units works](https://nobullshitloans.com/wealth/house-hacking/).
- **Keep your current home as a rental and buy your next primary.** Your low-rate mortgage stays put. Here's [how renting out your current house works](https://nobullshitloans.com/wealth/rent-out-your-house/).
- **Repeat it on purpose.** My [Blue Collar House Hack](https://nobullshitloans.com/wealth/blue-collar-house-hack/) uses a HELOC on the home you live in for the next home's down payment, then lets the rent pay the line down.

Each of those has to be a genuine move into the new home. Calling a rental your primary residence or a second home to get better financing is mortgage fraud. The same caution applies to using a HELOC on your home for a rental's down payment: it can work when your ratios are low and the line's purpose is stated truthfully. But your home is the collateral, so stop well short of what the line could fund on paper.

## Can you get a mortgage in an LLC's name?

Yes, but not a conventional one. A conventional loan closes in your personal name; a DSCR loan can close in an LLC. So if the property has to be in an LLC at closing, you're on a DSCR loan and paying more for it. Lenders prefer you personally because they can come after you personally, and an LLC that owns one or two houses gives them less to stand on.

My view, and it's a lending view, not legal advice: an LLC is not the end-all be-all. It protects what's inside it. For a typical long-term rental, starting in one costs you the cheaper loan, so get the liability answer from a real estate attorney first, then pick the loan. Short-term rentals are where I lean toward an LLC, since a steady stream of guests means more exposure.

**Watch out**
When the LLC is the borrower, its name has to match exactly on every document, and the leases have to name the same LLC as landlord. I've seen a mismatch force tenants to sign new leases and nearly sink a deal.


Thinking about moving a financed property into an LLC after closing? Talk to a real estate attorney first. Your mortgage has terms about transferring title, and that's a legal question, not a loan-officer one.

## Short-term rentals and DSCR loans

A short-term rental is an investment property, period. Planning to rent by the night rules out primary-residence and second-home financing, and calling it either one to get a better loan is mortgage fraud. Expect about 20% down, and some lenders want 25%. Some DSCR programs qualify on short-term rental market data or a short-term rental appraisal; others use long-term rent no matter how you run it. Your city or county decides whether and where you can rent by the night, so check before you buy.

That's one reason I like furnished monthly rentals, say near a hospital for traveling medical staff: the lender is often qualifying you on long-term rent anyway. And if someone offers a short-term rental loan at 15% down with no mortgage insurance, ask where the insurance went. In my read it's usually lender-paid mortgage insurance built into the rate, or a prepayment term. Price it against 20% down before you decide.

## 5+ units and mixed-use buildings

Residential mortgage rules stop at four units; even the 2026 conforming loan limits only run up to four-unit buildings. Past that, unit count splits the market.

| Building | Usual loan | How it's judged, in my experience |
|---|---|---|
| 1 to 4 units | Conventional or DSCR | Rent divided by the full payment, about 1.0 or better |
| Small building with a ground-floor shop | Mixed-use DSCR | About 1.15, with the shop under half of the total rent |
| 5 to 8 units | Some DSCR programs built for small apartment buildings | Lower leverage and higher minimum loan sizes |
| 15 units and up | A bank or a commercial DSCR lender | Net income after expenses against the debt payments, about 1.25 |

Between those sizes, it's lender by lender.

Mixed-use programs I've seen want the shop occupied and smaller than the residential part, in both income and floor area, and they won't count short-term rental income. On a building of 15 units or so, a bank loan works if you'll provide tax returns and financials; to qualify on the property's income alone, DSCR is the first look. Plan on 20% to 30% down, lenders who want experience with buildings that size, and documents like the rent roll, the trailing 12 months of income and expenses, and the offering memo. Send me addresses and asking prices before you tour, and I'll lay the options side by side. I also prefer one loan per property over a blanket loan. When you go blanket, you're in commercial lending.

## Investment property loans in Virginia: what changes locally

The loan rules don't change at the county line, but local property tax sits inside the payment the rent has to cover, so the same house at the same rent lands differently.

| Locality | 2026 rate per $100 | Monthly tax on a $300,000 assessment | DSCR in the example above |
|---|---|---|---|
| City of Richmond | $1.20 | $300 | 1.09 |
| Chesterfield County | $0.89 | $223 | 1.14 |
| Henrico County | $0.83 | $208 | 1.14 |
| Hanover County | $0.81 | $203 | 1.15 |

On a thin deal, a few hundredths is the difference between a full loan and a smaller one. Your bill follows the assessed value, not the price; here's how [Richmond-area property taxes and escrow](https://nobullshitloans.com/virginia/property-taxes/) work. Virginia's recordation taxes apply to investor purchases too, and the [Virginia closing costs](https://nobullshitloans.com/virginia/closing-costs/) page breaks them down line by line. Conventional investment loans follow the 2026 conforming loan limit of $832,750 for one unit in the Richmond area (up to $1,601,750 for four units), while DSCR programs set their own maximums.

The ratio is simple math. The judgment is in the order: owner-occupied plays first, conventional while it works, DSCR when it doesn't, and a refinance plan before you sign. Do it in that order and the rent carries more of the load.

## Frequently asked questions

### Does a DSCR loan look at my tax returns, W-2 or job?

Generally no. The lender looks at your credit, the property, the payment and the market rent, plus your down payment, reserves and bank statements. Your job, income and debt-to-income ratio stay out of the math, which is the whole point of the loan.

### Can I refinance a DSCR loan into a conventional loan later?

Yes, if you qualify for conventional by then. My plan for most investors is to refinance once the rental shows on your tax returns, a year at minimum and ideally two. Check for a prepayment penalty before you close the DSCR loan, because it can eat the savings.

### Can I use gift money for a DSCR down payment?

Some DSCR programs allow gift funds and some don't, especially for first-time investors. Conventional is stricter: Fannie Mae allows gifts only on a primary residence or second home, never on an investment property. Ask before you count on a gift, and expect to document it with a gift letter and proof the money moved.

### How many mortgages can I have?

On a Fannie Mae loan for a rental or a second home, the cap is ten financed properties with an automated approval, counting the one you're buying. Many DSCR programs don't use that count, which is one reason investors move to DSCR after the first few doors. The practical limits are usually cash, reserves, credit and discipline.

### Can I pull equity out of a rental without refinancing the first mortgage?

Sometimes. Some lenders offer second mortgages on rentals, qualified on the rent or on bank statements, and some HELOCs allow investment property at lower limits and higher rates. A rental is the least attractive property to borrow against with a line, so on investment property the cash-out refinance is usually the real tool.

## Sources

- [Fannie Mae Selling Guide B3-4.3-04, personal gifts](https://selling-guide.fanniemae.com/sel/b3-4.3-04/personal-gifts)
- [Fannie Mae Selling Guide B2-2-03, multiple financed properties](https://selling-guide.fanniemae.com/sel/b2-2-03/multiple-financed-properties-same-borrower)
- [FHFA, conforming loan limit values for 2026](https://www.fhfa.gov/news/news-release/fhfa-announces-conforming-loan-limit-values-for-2026)

## Disclosures

Individual Originator: Tyler Rood, Loan Officer, NMLS ID # 2064776 (www.nmlsconsumeraccess.org). Licensed in NC, PA, TX and VA.
Edge Home Finance, LLC | NMLS ID # 891464 | www.nmlsconsumeraccess.org. Licensed in all U.S. states & D.C., EXCEPT New York. Edge Home Finance, LLC is a mortgage broker, not a direct lender or creditor. Virginia Broker License MC-7006. North Carolina Mortgage Broker License B-201539. Pennsylvania Mortgage Broker License 81041. Texas: Mortgage Company License, Department of Savings and Mortgage Lending.
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