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Last updated: March 18, 2023

There is a lot of inaccurate and misleading information online about DSCR loans. This article is continually updated in an effort to share clear, accurate, insightful and actionable information so you can grow your rental property portfolio cost effectively and avoid common mistakes.

What is a DSCR loan

A DSCR loan is a mortgage specifically for income producing rental properties. DSCR stands for debt service coverage ratio, a simple cash flow metric calculated by dividing the rental property's monthly income by the monthly mortgage payment. While the concept of DSCR has been around for many years in corporate finance, the novelty has been its application in the single family (1 to 4 unit) residential rental property asset class. In the aftermath of the 2008 global financial crisis, the DSCR loan market has quickly become a multi billion dollar asset class with growing interest and involvement from Wall Street. Given investor preference for DSCR loans instead of bank loans, we expect to see continued growth in demand, origination volume, and market share for this loan type.

DSCR Loan Meaning

DSCR stands for debt service coverage ratio. A DSCR loan is a loan that is provided to a borrower to finance a specific investment property based on the debt service coverage ratio of that property.

Business Purpose Loan

A DSCR loan is a business purpose loan. Business purpose loans are commercial loans used by borrowers who seek to generate income by buying and managing a rental property. DSCR loan documents include a business purpose and occupancy affidavit where you (borrower) certify that your will be operating the property for business purpose and that neither you nor your relatives will be occupying the property as a personal residence.

Given that DSCR loans are business purpose loans, not consumer loans, most states do not require private lenders that originate DSCR loans to have an NMLS license. For liability protection, most DSCR lenders require title to be held in a business entity such as an LLC or Corporation.

DSCR Loan Program

The term "DSCR loan program" refers to the specific guidelines and requirements of a specific lender. While each DSCR loan program may vary slightly in as far as guidelines, because DSCR loans are aggregated and securitized (packaged into mortgage-backed securities), there is a high degree of consistency across lenders and programs. When comparing DSCR loan programs, the most important distinction to be aware of is the specific asset class -- i.e. 1-4 unit, 5-8 unit. For this guide and our private lending platform, we focus on 1-4 unit residential.

Program Guidelines

Asset Class 1-4 Unit
Term 30 Year
Rate Options Fixed, Adjustable
Amortization Options 20 Year, 23 Year, 25 Year, 30 Year
Rural Not Allowed
Minimum Credit Score 660
Experience Required No
Borrowing Entity LLC, Corporation, Personal Name
Personal Guarantee Yes
Portfolio Loan (2+ Properties) Yes
Minimum As Is Value $62,500
Minimum Loan Amount $50,000

DSCR Loan Requirements

DSCR loan requirements are subject to change based on market conditions. During periods of economic stability, DSCR program guidelines remain unchanged for prolonged periods of time. Guidelines can change frequently during periods of economic volatility including interest rate volatility, inflation fears, housing market price declines, recession fears, Fed policy uncertainty.

OfferMarket Most DSCR Lenders Most DSCR Lenders
Minimum DSCR 1.1 1.2
Minimum Rental Property Experience 0 1
Hard Credit Pull Yes, Tri Merge Yes, Tri Merge
Minimum Credit Score 660 680
Minimum Loan Amount $50,000 $75,000
Minimum As Is Value $67,500 $100,000
Appraisal Report with Onsite Inspection Yes Yes
Appraisal Condition Rating C1, C2, C3, C4 C1, C2, C3, C4
Rural Designation Not Allowed Not Allowed
Maximum LTV: Purchase 80% 80%
Maximum LTV: Cash out refi 75% 75%
Maximum LTV: Rate and term refi 80% 80%
Seasoning Requirement None 6 months
Escrowed Taxes and Insurance Yes Yes
Portfolio Loan (2+ Properties) Yes No
Landlord Insurance Yes Yes
Flood Insurance Yes, if in FEMA flood zone Yes, if in FEMA flood zone

DSCR Loan Qualifications

DSCR loan qualifications are deal-specific and borrower-specific.


🏠 property type, condition, value and location
πŸ’° property cash flow (DSCR)

OfferMarket Most DSCR Lenders
Property type 1 - 4 unit, warrantable condo 1 - 4 unit, warrantable condo
Appraisal Condition Rating C1, C2, C3, C4 C1, C2, C3, C4
As Is Value $62,500+ $100,000+
Loan amount $50,000+ $75,000+
DSCR 1.1+ 1.2+
Max LTV/LTC: Purchase 80% 80%
Max LTV: Cash Out Refi 75% 75%
Max LTV: Rate and Term Refi 80% 80%
Location Non-rural, no boarded up neighborhoods Non-rural, no boarded up neighborhoods


πŸ’³ credit
πŸ•΅οΈ background
🏠 rental property investing experience

OfferMarket Most DSCR Lenders
Credit Score 660+ 680+
Background Clean Clean
Investing Experience 0+ 1+

DSCR Loan Pros and Cons

Pro: Limited documentation

Many people refer to DSCR loans as "no doc" loans but the truth is they are "low doc" loans. You do not need personal income verification or tax returns. That means you can get a DSCR loan without a W2 and without having your most recent taxes filed.

Pro: Fast processing

Because there is limited documentation, you can get a DSCR loan faster than a bank loan or a conventional loan. We have funded DSCR loans in as little as 14 days, and every DSCR loan time to close target is 25 days or less.

Con: Landlord insurance requirement

DSCR loan programs generally have strict landlord insurance requirements. Technically this is a good thing because it protects your investment, but it will be more expensive than personal lines homeowners insurance coverage. First time DSCR loan borrowers are often surprised by insurance requirements and frustrated by the increased annual premium and insurance review. A common mistake is using a personal lines insurance agent to shop for and bind coverage for your rental property. Personal lines insurance agents have limited experience with commercial policies and you can end up over-paying and wasting a lot of time. To streamline the insurance component of DSCR loans and save you money, we launched OfferMarket Insurance, our in-house insurance agency specialized in landlord insurance for DSCR loans.

Landlord Insurance Requirement
Property Insurance Yes
General Liability Insurance Yes
Business Interruption Insurance (Loss of Rent) Yes
Mortgagee Clause Yes
Lender as Additional Insured Sometimes

DSCR Loan Interest Rates

Current DSCR Loan Rates

DSCR Loan Interest Rates Today

To determine DSCR loan interest rates today, you can

DSCR Loan Rates

DSCR Loan Calculator

Tri Merge Credit Report

Prepayment Penalty

DSCR Lender

Best Markets for DSCR Loans

The best market for a DSCR loan depends on your goal as an investor. If you're looking to invest in rental properties in fast-growing markets by population and rent, these are the top 5 markets:

City State Population Population Growth (2010-2020) Market Rent Growth (2010-2020)
Phoenix AZ 1,703,080 13.5% 59.9%
San Antonio TX 1,547,253 22.3% 55.4%
Houston TX 2,330,452 12.6% 51.5%
Austin TX 1,004,698 37.8% 70.5%
Fort Worth TX 927,704 21.5% 49.2%

Best DSCR loans

DSCR Loan vs Conventional Loan

DSCR Loan Programs

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