DSCR Loans Overview
A Smarter Way to Fund Your Investment Property
What Is a DSCR Loan?
A DSCR loan is a type of mortgage used by real estate investors to purchase or refinance income-producing properties, based on the property’s cash flow, not your income. This makes it an excellent choice for:
- Self-employed investors
- Full-time real estate professionals
- Borrowers with complex or variable income
- Anyone looking to grow a portfolio with minimal red tape
How It Works
DSCR loans are approved based on the property’s rental income, not your job, W-2, or tax returns. That means no income verification or employment documentation is typically required. The key metric? DSCR = Net Operating Income (NOI) / Annual Debt Payments
- Net Operating Income (NOI) = Rental income minus expenses (taxes, insurance, maintenance—not mortgage payments)
- Annual Debt Service = Total of your yearly mortgage principal and interest (P&I), and sometimes property taxes, insurance, and HOA fees
Example:
If your property generates $60,000 in NOI per year and your annual mortgage payments are $48,000, DSCR = 60,000 ÷ 48,000 = 1.25. That means your property earns 25% more than your debt payments—most lenders consider this a solid deal.
What Properties Qualify?
DSCR loans are ideal for:
- Single-family rentals
- Multifamily properties
- Short-term rentals (Airbnb, VRBO)
- Mixed-use or commercial residential spaces
Why Investors Choose DSCR Loans
✔ No Tax Returns Needed
✔ No Employment or W-2 Verification ✔ Scalable—No Limit on Number of Properties Financed
✔ Ideal for LLCs, Trusts, or Self-Directed IRA purchases
✔ Flexible terms—some offer interest-only options
✔ Larger loan amounts based on property performance
Things to Keep in Mind
Like any financial tool, DSCR loans come with considerations:
- Similar Interest Rates & Down Payments Compared to conventional loans, rates and minimum down payments (often 20-25%) may be higher due to added lender risk.
- Prepayment Penalties Some DSCR loans carry penalties if you pay off the loan early. Always check the fine print.
- Performance-Based Approval If your property loses tenants or income drops, it could affect your ability to refinance or qualify again.
Is a DSCR Loan Right for You?
DSCR loans may be a great fit if you:
- Don’t qualify for a conventional mortgage
- Are investing in a property with a strong rental income
- Want to build a portfolio of multiple cash-flowing properties
- Are looking for limited-doc or no-doc loan options
Explore Other Options if You:
- Need lower upfront costs or better interest rates (look at conventional or FHA loans)
- Already own equity-rich property—consider HELOCs or cash-out refinancing
Ready to Grow with a Smarter Strategy?
At HARVEST REI, we’re here to help you navigate financing that fits your investment goals. Whether you’re a first-time buyer or scaling to 10+ doors, a DSCR loan might be the key to unlocking your next deal.
Let’s talk about your next investment move.
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