What Is a DSCR Loan?
A DSCR loan — Debt Service Coverage Ratio loan — is a non-QM investment property mortgage that qualifies borrowers based on the rental income generated by the property rather than the borrower's personal income. DSCR loans are specifically designed for real estate investors and do not require W-2s, tax returns, or employment verification.
The DSCR ratio compares the property's rental income to its mortgage payment: a DSCR of 1.0 means the rental income exactly covers the mortgage; above 1.0 indicates positive cash flow. Most lenders require a minimum DSCR of 1.0 to 1.25.
How DSCR Is Calculated
The basic formula: DSCR = Monthly Rental Income ÷ Monthly Debt Obligation
- Monthly rental income is typically based on a lease agreement or market rent appraisal (Form 1007)
- Monthly debt obligation includes principal, interest, taxes, insurance, and HOA (PITIA)
- Example: $3,500 rent ÷ $2,800 PITIA = DSCR of 1.25
- Some lenders accept DSCR below 1.0 for strong borrowers with higher down payments
DSCR Loan Requirements
- Investment property only — not available for primary residences
- Credit score typically 660–700 minimum depending on program and LTV
- Down payment typically 20–25% for single-family; more for multi-unit
- No income documentation or employment verification required
- Loan amounts vary — many programs allow jumbo loan amounts
- Short-term rentals (Airbnb/VRBO) may be eligible under certain programs with market rent appraisal
- Eligible property types: single-family, 2–4 units, condos, townhomes
DSCR Loans for Southern California Investors
Southern California's strong rental market — particularly in Los Angeles, Long Beach, the San Fernando Valley, and the Inland Empire — makes DSCR loans a practical tool for investors building or expanding a rental portfolio. Properties with consistent market rents often qualify with minimal friction.
No Income Verification Required
DSCR loans allow investors to qualify based entirely on the investment property's performance. This is particularly valuable for investors who have significant real estate holdings but show lower taxable income due to depreciation and other deductions.
Pros and Cons
Advantages
- No income verification or tax returns
- Based on property cash flow
- Scalable — can close multiple DSCR loans
- Available for short-term rentals
- Can be held in an LLC (lender dependent)
Considerations
- Investment property only
- Higher rates than owner-occupied loans
- 20–25%+ down payment required
- Property must cash flow at required ratio