What Are DSCR Loans? A Guide for Rental Property Investors

DSCR stands for Debt Service Coverage Ratio—yeah, I know, sounds fancy, but stick with me. Basically, a DSCR loan lets you buy a rental property without the bank caring too much about your personal income. Instead, they look at how much money your property can make from rent. Pretty cool, right?

Here’s the deal: they take the rent your property brings in each month and divide it by the monthly costs—like your mortgage payment, taxes, insurance, and any HOA fees (they call all that PITIA). So, if your property makes $3,000 a month in rent, and your costs are $2,500, your DSCR is 1.2 (that’s $3,000 divided by $2,500). Most lenders want that number to be at least 1.0 or 1.25, which just means your property’s gotta at least pay for itself.

Wanna figure out your DSCR? I’ve got a DSCR Loan Calculator on my site—just plug in your numbers and see where you stand!

Why I Love DSCR Loans for Rentals

DSCR loans are awesome for a bunch of reasons, especially if you’re trying to get into rentals. Here’s why I think they’re the best:

• They Don’t Care About Your Job: You don’t have to show pay stubs or tax stuff. They just wanna know your property can make money.
• Lots of Options: You can pick from things like 30-year loans, interest-only payments, or ones that change over time. Whatever works for you!
• Great for Airbnbs: You can use DSCR loans for short-term rentals like Airbnb or VRBO. Perfect if you’re in a hot spot like Florida!
• Buy More Properties: Since they’re not looking at your personal debt, you can keep buying more rentals without hitting a limit.

How to Actually Use a DSCR Loan to Buy a Rental

Alright, let’s get to the good stuff—how do you use a DSCR loan to start your rental journey? Here’s what I did, step by step:

1. Find a Property That Makes Money: You want a rental that brings in good cash. I use AirDNA to check what I can charge for short-term rentals in my area, or you can look up long-term rents on sites like Zillow.
2. Crunch Your DSCR Number: Figure out how much rent you’ll make and what your costs will be. Aim for a DSCR of 1.2 or better—it’ll make lenders happy. My DSCR Calculator can help!
3. Make Sure Your Credit’s Okay: Most lenders want a credit score around 660 or higher. If yours is more like 720, you’ll get better deals and might be able to borrow more.
4. Pick a Lender: Look for ones who work with investors and have good rates. I’m checking out Kiavi right now—they seem pretty awesome for beginners.
5. Apply and Get It Done: Send in your property details and credit stuff. DSCR loans usually take about 3-4 weeks to close, which is faster than a regular mortgage.

Some Tricks to Make Your DSCR Better

If you wanna get the best loan deal, you gotta make your DSCR look good. Here’s what I’ve learned:

• Charge More Rent: Look at what other rentals in your area are charging and see if you can bump yours up a bit.
• Cut Costs: Shop around for cheaper insurance, or do things like add energy-saving lights to lower bills.
• Put More Money Down: If you can pay 20-30% upfront, your monthly payments will be lower, which helps your DSCR.

Oh, and my LTV Calculator can help you figure out how much you’re borrowing compared to the property’s value—it’s another thing lenders look at!

Let’s Get You Started!

DSCR loans are like a secret weapon for buying rental properties without all the usual bank hassle. If you’re ready to jump in, I’ve got a free DSCR Loan Checklist that’ll walk you through everything you need to do. It’s saved me so much stress, and I know it’ll help you too!

Wanna chat more or get updates on lenders I’m finding? Follow me on X (@DscRforrentals)—I’m always sharing what I learn!

Hey, just so you know: I might add some affiliate links later, but it won’t cost you extra.