DSCR Loans 101: Financing Rentals on the Property's Income

A DSCR loan is a long-term loan for rental property that qualifies mainly on the property's income instead of yours. The lender checks whether the rent covers the monthly payment. If it does, you generally do not need to hand over tax returns, W-2s or pay stubs.

What DSCR stands for

DSCR means debt service coverage ratio. It measures how well a property's income covers its debt payment. For most residential DSCR loans, lenders calculate it as:

DSCR = monthly gross rent / monthly PITIA

PITIA is principal, interest, property taxes, insurance and association (HOA) dues. Using the full payment, not just the mortgage, gives a truer picture of what the property has to cover every month.

Reading the result

Example (illustrative only): A single-family rental leases for $3,000 a month. The full payment is $2,500.

$3,000 / $2,500 = 1.20x

That means rent is 20% more than the payment.

• Above 1.00x: rent more than covers the payment
• At 1.00x: rent covers it exactly
• Below 1.00x: rent falls short, and someone has to make up the difference

Lenders set a minimum ratio, and a stronger ratio can earn better terms. RSC Private Lending's DSCR Rental program has a minimum DSCR of 0.75x.

Remember that this ratio does not subtract maintenance, management or vacancy, so your real cash flow will be lower.

How a DSCR loan typically works

• Use: buying or refinancing investment property, never a home you live in
• Term: often 30 years, with fixed or adjustable options and sometimes an interest-only period
• Borrower: you personally or an LLC, usually with a personal guarantee
• Qualifying: rent, credit, reserves, down payment and the appraisal

At RSC, the DSCR Rental program is a 30-year fixed loan from $150K to $3M, with rates from 6.750%, a minimum FICO of 660 and up to 80% LTV on a purchase or rate-and-term refinance (75% on a cash-out). Borrowers are LLCs, LPs or corporations with a personal guarantee, and prepayment options run from a 5-year step-down to no prepayment penalty. Rates and terms may change without notice.

Who uses DSCR loans

• Self-employed investors whose tax returns understate their income
• Investors with many financed properties who hit conventional limits
• Buyers who want to hold rentals in an LLC
• Investors refinancing out of a short-term rehab or bridge loan

The trade-offs

Rates and costs are often higher than conventional loans for borrowers who qualify for both. Many DSCR loans carry prepayment penalties. And because the property has to qualify itself, an overpriced or under-rented property will struggle.

What this means for you

If you buy rentals and want financing that looks at the deal instead of your tax returns, a DSCR loan is built for that. Start by running the ratio on the property you have in mind.

Want to run the numbers on a rental? Send RSC Private Lending your scenario for a term sheet in 24 hours. All loans are business-purpose and subject to underwriting.