A DSCR loan qualifies an investment property on its rent instead of your personal income. Lenders divide the monthly rent by the full monthly payment, including principal, interest, taxes, insurance and any HOA, and many look for a ratio of about 1.0 or higher. They also check your credit, down payment, reserves and an appraisal with a market rent estimate, but not your tax returns or pay stubs. The exact minimums vary by lender.
What are the requirements for a DSCR loan?
DSCR is not a government or Fannie Mae program, so there is no single rulebook. Each lender writes its own guidelines. The categories they check are consistent, though. The numbers inside them are not.
- The property's DSCR. Rent divided by the full monthly payment. A ratio of 1.0 means the rent covers it.
- Credit. Each lender sets its own minimum score. There is no regulatory floor.
- Down payment. Commonly 20% or more, depending on your credit, the ratio and the loan amount.
- Reserves. Savings left after closing, measured in months of the property's payment.
- Property use. Investment property only. You cannot live in it.
- Appraisal with rent. The appraiser estimates market rent, on Form 1007 for a single unit or Form 1025 for 2 to 4 units.
- Entity documents, if any. Most DSCR lenders will close in an LLC, usually with a personal guarantee and the LLC's formation documents.
What lenders do not ask for is personal income documentation: no tax returns, W-2s or pay stubs. They still pull credit, appraise the property and verify your down payment and reserves.
Why a lender can skip your income
Federal Truth in Lending rules do not apply to business-purpose credit, and Regulation Z treats a loan to buy, improve or maintain a rental property you will not live in as business purpose, regardless of the number of units. If you expect to live in the property more than 14 days in the coming year, it does not count as non-owner-occupied. Because the loan is business credit, the consumer ability-to-repay income rules do not govern it, which is why the lender can qualify on the property. We explain the consumer side of those rules in our article on Non-QM loans.
How is the DSCR ratio calculated?
The formula is simple: monthly rent divided by the monthly payment, often written as PITIA.
- Principal and interest on the new loan
- Property taxes
- Homeowners insurance, plus flood insurance if required
- HOA or condo association dues, if any
Now raise the insurance in that example by $200 a month. The payment becomes $3,000, and the ratio drops to exactly 1.00. Nothing about the rent changed. That is the whole Florida story in one line, and we come back to it below.
Some lenders calculate the ratio on an interest-only payment when the loan is interest-only. That varies by lender.
What rent do lenders use, actual lease or market rent?
It varies by lender. Common approaches:
- Purchase with no lease. The appraiser's market rent estimate is used.
- Property with a lease. Some lenders use the lease, some use the lower of the lease and market rent, and some allow the higher of the two with proof the rent is being received.
- Short-term rentals. Some lenders accept short-term rental income based on rental history or third-party market data. Others do not accept it at all.
Because the rent used sits on top of the ratio, two lenders can look at the same property and reach different answers.
What happens if the property's DSCR is below 1?
Below 1.0, the rent does not cover the full payment. Some lenders decline the loan. Others allow it with a larger down payment, stronger credit or more reserves, at different pricing. There are also no-ratio programs that do not use a DSCR at all.
A few levers can move the ratio, depending on what a lender offers:
- A larger down payment, which means a smaller loan and a smaller payment
- A different loan structure, such as interest-only or a longer amortization where available
- Buying down the rate
- A property with lower HOA dues or insurance costs
Ratio close to the line?We price your deal with several DSCR lenders, since minimums and rent rules differ.
Talk to a brokerCan you get a DSCR loan with no down payment?
Generally no. DSCR loans are investor loans, and lenders require equity in the property. They commonly require 20% or more down. Most "no money down" claims online describe something else, such as seller financing, a partner's second loan or cash taken out of another property you own. Seller-paid costs are limited on investment purchases too, and DSCR lender limits vary.
If you already own property with equity, a cash-out refinance on it can fund the next down payment. For conventional loans, Fannie Mae caps cash-out on a single-unit investment property at 75% of its value. DSCR cash-out limits vary by lender.
First-time investors
Many lenders allow first-time investors, sometimes with tighter terms like more reserves or a lower loan amount relative to value. Some want to see prior experience owning rentals. This varies by lender.
What changes the ratio in Florida
The same rent can produce a lower DSCR in Florida than in many other states, because several Florida costs sit on the payment side of the ratio.
Insurance and flood
Homeowners insurance is a large part of a Florida payment. If the property is in a FEMA Special Flood Hazard Area, federal rules require flood insurance on mortgages from federally regulated or government-backed lenders, and DSCR lenders commonly require it there as well. Every insurance dollar lowers the ratio, so get real quotes before you write an offer.
Property taxes
An investment property does not get the Florida homestead exemption. The seller's tax bill may reflect a homestead the seller had, so your taxes after purchase can be higher than the seller's bill. Use a non-homestead estimate in your numbers.
Condos and HOA dues
Florida's milestone inspection law and structural integrity reserve study requirements for condo buildings three or more habitable stories tall can raise association dues or bring special assessments. Higher dues lower the ratio, and open repair issues can affect whether a lender will lend in the building at all. Condo rules vary by lender.
How do I get a DSCR loan?
- Choose the property and estimate the rent, from a lease or local market rents
- Estimate the full payment, including Florida insurance, flood if needed, non-homestead taxes and HOA
- Have a broker price the scenario across DSCR lenders
- Order the appraisal with a rent schedule
- Underwriting reviews credit, reserves, the appraisal and any LLC documents
- Close, in your name or your LLC's
What are the pros and cons of a DSCR loan?
Pros. No personal income documents. You can close in an LLC, which Fannie Mae and Freddie Mac loans generally do not allow. DSCR loans work outside the conventional limit on financed properties, with each lender setting its own exposure rules. Purchase, rate-and-term and cash-out refinances are all available.
Cons. Pricing is set by the property's ratio, your credit and your down payment, and can differ widely between lenders. Down payments are often larger than on some conventional investor options, and reserves are required. Investment property only.
Prepayment penalties. Many DSCR loans carry one, usually stepping down each year over the first one to five years. For consumer mortgages, federal rules ban most prepayment penalties and cap the rest at no penalty after three years, 2% in the first two years and 1% in the third. Business-purpose DSCR loans fall outside those rules, which is why their penalties can run longer. Match the penalty to how long you plan to hold.
How we approach it
DSCR terms vary widely by lender, so we shop your scenario across our wholesale partners rather than fitting it to one lender's guidelines. We start with a realistic Florida payment, including insurance, flood, taxes and HOA, so the ratio we price is as close as possible to the one an underwriter will see. Then we show you the trade-offs between down payment, structure and prepayment penalty. All loans are subject to credit approval and underwriting.
DSCR (Investor Cash Flow)Qualify on the property's rentNo-RatioInvestor loans that do not use a DSCRMortgage calculatorsEstimate the payment behind the ratioSources
- CFPB: Regulation Z, 12 CFR 1026.3, Exempt transactions
- CFPB: Regulation Z, 12 CFR 1026.43, Minimum standards for transactions secured by a dwelling
- Fannie Mae Selling Guide: B3-3.8-02, Rental Income from the Subject Property
- Fannie Mae: Eligibility Matrix
- FEMA FloodSmart: Who's eligible for NFIP flood insurance?
- Florida Statutes: Section 553.899, Mandatory structural inspections for condominium and cooperative buildings
- Florida DBPR: Condominium inspections and structural integrity reserve studies
Common questions
Lenders look at the property's debt service coverage ratio, your credit, your down payment, your reserves and an appraisal with a market rent estimate. The property must be an investment you will not live in. No personal income documentation is required. The specific minimums for each item vary by lender.
Divide the property's monthly rent by its full monthly payment: principal, interest, property taxes, homeowners insurance and any HOA dues, plus flood insurance if required. A ratio of 1.0 means the rent exactly covers the payment. Example with round numbers: $3,000 rent divided by a $2,800 payment is about 1.07.
Generally no. DSCR loans are investor loans and lenders require equity in the property. DSCR loans commonly require 20% or more down, depending on your credit score, the property's DSCR and the loan amount.
Many lenders allow it, sometimes with tighter terms such as more reserves or a larger down payment. Some require prior experience owning rentals. It varies by lender, which is why comparing lenders matters.
Some lenders decline it, and some allow it with a larger down payment or other strengths in the file. A no-ratio program, which does not use a DSCR at all, is another option. Changing the loan structure or the down payment can also move the ratio.
Often, yes. Many DSCR loans charge a penalty for paying off within the first one to five years, usually stepping down each year. The penalty can typically be shortened or removed in exchange for a higher rate, so it should match how long you plan to hold.
General information only, not a commitment to lend or an offer of credit. Loan programs, guidelines, interest rates and terms are subject to change without advance notice and vary by lender. All loans are subject to credit approval and underwriting.
My Liberty Loans is a DBA of Liberty Mortgage Associates Inc., NMLS #275236.