A DSCR loan (Debt Service Coverage Ratio loan) is a type of mortgage designed for real estate investors. Instead of using your personal income to qualify, the lender looks at how much rental income the property generates to determine if it can cover the loan payments.

How It Works:

• DSCR Formula:
  DSCR = Rental Income ÷ Loan Payment (PITIA)
  (PITIA = Principal, Interest, Taxes, Insurance, and Association Dues)
• If the DSCR is 1.00 or higher, it means the rental income fully covers the loan payment.
• If the DSCR is below 1.00, it means the rental income falls short, and the borrower may need extra cash reserves or a larger down payment.

Why Investors Like It:

• No need to provide tax returns or W-2s
  Approval is based on the property's cash flow, not personal income
• Ideal for investors looking to expand their rental portfolio

Key Considerations:

• Higher down payments (typically 20-25% or more)
• Interest rates may be slightly higher than traditional mortgages
• Some lenders require rent history or signed lease agreements