What It Takes to Qualify for a DSCR Loan

A DSCR loan qualifies you mainly on whether the rental's income covers its payment, not on your personal income. Lenders still look at the ratio itself, your down payment, credit, cash reserves and the property. Exact thresholds vary by lender, so treat the points below as general guidance.

The deal numbers

1. The coverage ratio

DSCR, or debt service coverage ratio, is monthly rent divided by the full monthly payment, which covers principal and interest along with taxes, insurance and any HOA dues (often shortened to PITIA). A ratio of 1.00x means rent exactly covers the payment. Many lenders want a ratio at or above that level, and a higher ratio can earn better terms. Some programs go lower: RSC Private Lending's DSCR Rental program has a minimum DSCR of 0.75x.

2. Down payment or equity

DSCR loans are investment loans, so expect a larger down payment than on a home you live in. Maximum loan-to-value (LTV) depends on your credit, the ratio and the property type. On RSC's DSCR Rental program, loans run from $150K to $3M, with up to 80% LTV on a purchase or rate-and-term refinance and 75% on a cash-out refinance.

The borrower side

3. Credit

Credit still counts. Lenders typically set a minimum score and price in tiers, with stronger scores getting better rates and higher leverage. They also look for recent major events like foreclosure or bankruptcy. RSC's DSCR Rental program requires a minimum FICO of 660.

4. Reserves

Most lenders want to see cash in the bank after closing, enough for a few months of payments if a tenant leaves or a big repair hits.

The property and the paperwork

5. An eligible property

Common fits include single-family rentals, 2 to 4 unit buildings, townhomes and condos. Some lenders also allow short-term rentals or small apartment buildings. The property should be in rentable condition. RSC's DSCR Rental program covers single-family, 2 to 4 unit, condo, townhome and PUD rentals, and short-term rentals are welcome.

6. Documentation

The big difference from a bank loan: no tax returns, W-2s or pay stubs in most cases. Instead, expect:

• Leases, or a market rent estimate from the appraisal
• The appraisal itself
• Bank statements for down payment and reserves
• Entity documents for the borrowing LLC or company
• Insurance and property tax information

RSC lends to LLCs, LPs and corporations with a personal guarantee. U.S. citizens and permanent residents are eligible; foreign nationals are not.

Example (illustrative only): A self-employed investor with uneven income on paper wants to buy a $300,000 rental that will lease for $2,500. With an estimated total payment of $2,050, the DSCR is about 1.22x. A bank may struggle with the tax returns. A DSCR lender looks at the rent, the payment, credit and reserves.

Who DSCR loans tend to suit

Self-employed borrowers, investors with complex returns, people buying in an LLC, and anyone growing a portfolio past the point where conventional lenders cap the number of financed properties.

What this means for you

Start with the ratio. If the rent comfortably covers the full payment, you have the foundation. Then line up your down payment, reserves and credit.

Want to see if your rental qualifies? Send RSC Private Lending your scenario for a term sheet in 24 hours. All loans are business-purpose and subject to underwriting.