DSCR and investor loans

How DSCR works

DSCR stands for Debt Service Coverage Ratio, which is the property's monthly rent divided by its monthly payment including taxes, insurance and any HOA dues. A ratio of 1.0 means the rent exactly covers the payment. Most lenders want to see 1.0 to 1.25, and some will go below 1.0 at a higher rate and a larger down payment.

Here's the important part: no tax returns, no W-2s, no debt-to-income calculation on you. The property qualifies itself. So for an investor with several properties, growing depreciation, or self-employment income that underwrites badly, this removes the constraint entirely.

What to expect

These are non-QM loans (meaning the lender keeps them rather than selling them to Fannie Mae), so the pricing sits above conventional. What you get for that is a product with effectively no ceiling on how many of them you can do.

Conventional first, though

If you qualify conventionally, take the conventional loan. It's cheaper money, and cheaper money is the whole game here. Fannie Mae allows up to ten financed properties, and plenty of investors reach for DSCR long before they've used those up, mostly because somebody told them to. I'll check conventional first every single time.

So when does DSCR earn its cost? When you've exhausted your conventional slots, when your returns don't support the debt-to-income math, when you want to hold title in an LLC, or when you need to close faster than full documentation allows.

Short-term rentals

Some DSCR lenders will underwrite on projected short-term rental income, often using a market data report rather than a signed lease. That means fewer lenders and higher pricing, and local regulation is the real risk in this corner. Portland, Bend and Vancouver all regulate short-term rentals differently, and the rules have tightened repeatedly over the last few years. So confirm what's permitted at that specific address before you underwrite a business plan on top of it.

Common questions

Can I close in an LLC?

Usually yes, and it's one of the main reasons investors choose DSCR in the first place. Talk to your attorney and your CPA about whether you actually should.

What if the property is vacant?

Most lenders will use market rent from an appraiser's rent schedule rather than an actual lease, though a signed lease usually helps your pricing.

Is there a limit on how many I can have?

Generally no. That's the whole point of the product, and it's why investors move to it once conventional runs out.