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Everything you need to know about qualifying by cash flow, locking 30-year terms, and scaling from 1 to 10+ doors, without traditional income documentation.
What Is a DSCR Loan?
A Debt Service Coverage Ratio (DSCR) loan allows real estate investors to qualify based solely on the cash flow of the property, not personal income or tax returns.
It’s the go-to product for buy-and-hold investors looking to scale portfolios with predictable payments and long-term financing.
DSCR loans come with 30-year fixed or interest-only terms, up to 80% LTV on purchases, and are available for 1–10 unit properties, including small multifamily and short-term rentals.
DSCR Formula & Thresholds
Lenders use a simple ratio to measure property performance:
DSCR = (Gross Monthly Rent ÷ Monthly PITIA)
(PITIA = Principal, Interest, Taxes, Insurance, and Association dues)
| DSCR | Interpretation | Typical Result |
| 1.00x | Break-even cash flow | May qualify with neutral risk |
| 1.10–1.25x | Positive cash flow | Strong approval range |
| >1.25x | Excellent coverage | Best rates and LTV options |
For example:
If rent is $2,500/month and PITIA is $2,000, DSCR = 1.25x → qualifies comfortably.
Rent Rolls, Leases & Vacancy Assumptions
To calculate DSCR, lenders use:
- Current lease or market rent (via appraisal Form 1007)
- Vacancy factor (typically 10% deduction)
- Verified insurance and tax amounts
A consistent rent roll and signed lease are key to fast underwriting. For vacant units, market rents can still be used if the property is ready to rent.
Property Types Eligible
- Single-family rentals (SFR)
- 2–4 unit multifamily
- Townhomes and condos (non-warrantable considered case-by-case)
- Small multifamily (5–8 units) under portfolio structure
- Short-term or mid-term rentals with documented market occupancy and income
Qualification Without Traditional Income Documentation
Unlike conventional loans, DSCR programs skip W-2s, tax returns, or DTI ratios.
Instead, they focus on credit, reserves, experience, and property performance.
Credit, Reserves & Experience
| Factor | Typical Guideline |
| Credit Score | 660+ (700+ preferred for best rates) |
| Reserves | 3–6 months PITIA (varies by LTV and DSCR) |
| Experience | Prior landlord or rehab experience helps but not required |
| Entities | LLC or corporation ownership allowed |
Appraisal, Market Rents & DSCR Test
A full appraisal with 1007 rent schedule confirms market rent and value.
The underwriter runs a DSCR test to ensure coverage.
If DSCR falls slightly below 1.00x, some programs still qualify with higher down payment or rate adjustment.
Rate/Term Scenarios & Interest-Only Options
Long-term rental loans can be structured to match your cash flow strategy.
Investors can choose from fixed, ARM, or interest-only options, ideal for maximizing yield or preparing for future exits.
Illustrative LTV & Term Scenarios
| Loan Type | Max LTV | Term | Notes |
| Purchase | Up to 80% | 30-year fixed or ARM | DSCR ≥ 1.00x |
| Cash-Out Refinance | Up to 75% | 30-year | Recycle equity tax-free |
| Interest-Only Option | Up to 80% | 10-year IO, 30-year amortized | Improves monthly cash flow |
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30-Year Fixed vs. ARM; IO up to 120 Months
- 30-Year Fixed: Set-and-forget predictability for long-term holders.
- ARM (5/1, 7/1, 10/1): Lower intro rate, ideal for refi or sale within 5–10 years.
- Interest-Only (IO): Pay only interest for up to 10 years, then amortize, perfect for maximizing rental yield.
Prepayment Structures & When They Make Sense
Most DSCR loans offer 1–5 year step-down prepayment options, like:
| Term | Penalty | Best For |
| 1 year | 1% | Flippers transitioning to DSCR |
| 3 years | 3–2–1 | Standard hold investors |
| 5 years | 5–4–3–2–1 | Long-term buy-and-hold |
Prepay penalties keep rates low and are often waived for sale or refinance with the same lender.
Portfolio Strategy & Scale
Once stabilized, investors often refinance multiple properties into a portfolio DSCR loan for easier management and consistent cash flow.
From Bridge to DSCR Take-Out
Many investors use bridge loans for acquisition and rehab, then refinance into DSCR loans once the property is leased.
This “bridge-to-DSCR” pipeline allows fast scaling with minimal downtime between deals.
Seasoning, Cash-Out Strategy & Repeatable Workflow
| Step | Action | Typical Timeframe |
| 1. Close Bridge Loan | Acquire and rehab | 3–9 months |
| 2. Stabilize | Lease units, document rents | 1 month |
| 3. DSCR Take-Out | 75–80% LTV refi | 2–4 weeks |
| 4. Recycle Capital | Use cash-out for next deal | Immediate |
When done correctly, DSCR loans become the foundation for long-term wealth and scalability.
Frequently Asked Questions
What’s the minimum DSCR?
Most programs require 1.00x, though some allow 0.90x–0.95x with a higher down payment or reserve strength.
Are short-term rentals eligible?
Yes, if documented with market rent data or 12-month AirDNA/P&L reports.
Can I close in an LLC?
Absolutely. DSCR loans are business-purpose loans and can close in LLCs or corporations.
Do rate buy-downs exist?
Yes. Investors can purchase discount points to lower their permanent rate or qualify at borderline DSCRs.
How many months of reserves are required?
Typically 3–6 months PITIA, though multi-property portfolios may require more.
Is there a prepayment penalty?
Yes, usually 1–5 years depending on the program. Some lenders offer no-penalty options at slightly higher rates.
Build Cash Flow for the Long Haul
Whether you’re buying your first rental or expanding a 20-door portfolio, Realty Capital Financial provides fast, flexible DSCR financing built around real investor goals.
Qualify by cash flow, lock in your 30-year rate, and grow your income for years to come.
