How to Qualify for a DSCR Loan: A Guide for Real Estate Investors

Last updated: November 15, 2024

Navigating real estate investment is exciting, but financing options can get a bit tricky—especially if you're exploring DSCR loans. DSCR (Debt Service Coverage Ratio) loans are an excellent option if you’d rather focus on a property’s income potential than your own financial history. These loans give investors like you a chance to expand portfolios without the usual hoops of traditional lending.

Getting the hang of how to qualify for a DSCR loan is key to making the most of these financing options. Here, we’ll walk through what you need to know about DSCR loans, the basics for qualifying, and a few tips for overcoming common challenges.

What’s a DSCR Loan?

A DSCR loan is all about your property’s income instead of your personal finances. Lenders use the DSCR ratio—basically a measure of the property’s income versus its debts—to determine if the property can cover loan payments comfortably. The higher the DSCR, the easier it is to get approval. Most lenders look for a DSCR of at least 1.1.

What’s great about DSCR loans is that they’re perfect if you’re managing multiple properties or looking to buy income-generating properties. Whether it’s rental homes, vacation spots, or commercial properties, DSCR loans let you focus on the property’s ability to generate cash.

Basic Requirements for DSCR Loans

While DSCR loans mainly look at property income, lenders still want to check a few things about you as the borrower. Here’s a quick rundown of what they usually require.

Property type and strategy

The healthiest market for DSCR loans focuses on 1-4 unit residential properties in non-rural areas with long-term leasing strategy (12+ month lease).

These are the easiest property types to get funded:

✅ Single family (1-unit)
✅ Duplex
✅ Triplex
✅ Quadplex
✅ Warrantable condominium

These property types are relatively straightforward to get funding, though LTV may be lower and interest rate may be higher:

✅ Short term rental (STR)
✅ Mid term rental (MTR)
✅ 5+ unit multifamily
✅ Mixed use

These are some of the property types for which real estate investors commonly request DSCR loans, only to face difficulties receiving funding:

✅ Commercial
✅ Rural

Minimum Credit Score

Your credit score isn’t the star here, but it’s still in the show. Most lenders want the mid score on your soft trimerge credit report to be least 660, and a higher score will help you qualify for better terms and lower interest rates.

Income and Employment

Although DSCR loans focus on property income, lenders might still look at your employment and stated income simply to understand your overall borrower profile. To be clear, the following are never required:

❌ Employment verification
❌ W2
❌ Pay stub
❌ Tax returns

Debt-to-Income Ratio

The Debt-to-Income (DTI) ratio isn’t as crucial for DSCR loans, but having a reasonable DTI still helps. It gives lenders confidence that you’re in a good spot financially. Technically, there are no DTI requirements in the guidelines of the institutional investors that buy DSCR loans from DSCR lenders such as OfferMarket.

On a related note, DSCR loans are not usually reported to your personal credit bureau accounts and therefore do not affect your DTI when you are applying for a conventional loan (i.e. primary residence mortgage).

Steps to Qualify for a DSCR Loan

Let’s break down the process of qualifying for a DSCR loan. Following these steps can make the application smoother and help you put your best foot forward.

1. Get Your Documents Ready

Having your paperwork lined up is half the battle. Here’s what lenders will want to see:

Loan Application: this is typically a 1-2 page e-sign form that accomplishes the following to ensure you are within guidelines as a borrower and/or guarantor

• authorization to run credit and background report
• authorization to order appraisal
• residency status (i.e. US Citizen, Green Card Holder, Foreign National)

Bank Statements: the 2 most recent bank, brokerage, or retirement account statements. The account can be in your personal name or in the borrowing business entity's name. Business bank account is not required. Seasoning of bank account is not required.

Property Appraisal: the lender will order an appraisal, typically via an appraisal management company ("AMC") to verify that the property meets DSCR loan guidelines. It's important that you, property manager or real estate agent schedules with the appraiser to make the property accessible in a timely manner for their interior inspection. If there are tenants, you will want to provide them with required notice to ensure the appraiser has access to all rooms during their inspection.

The following guidelines are confirmed by the appraisal:

• Appraiser's opinion of As Is value
• Appraiser's opinion of market rent (12 month lease, unfurnished)
• Property condition rating
• Deferred maintenance
• Compliance with rental/housing code (i.e. smoke detectors present)
• Flood zone

2. Meet With DSCR Lenders

Once your documents are ready, it’s time to connect with lenders. Here’s how to get the most out of these meetings:

3. Set Clear Goals and Expectations

Know what you’re aiming for with loan amount, interest rate, prepayment penalty. Being unsure of what your requirements are can lead to frustration later in the process. For example, if you decide shortly before closing that you want a higher loan amount than you initially requested, but your credit score does not support that associated LTV. When it comes to lending, setting correct expectations is absolutely crucial -- this is true of borrowers and lenders.

This step is not just about you understanding what is expected of you as a borrower. It's equally important to have a clear understanding of what you should expect from your lender.

Here are some things to clarify:

• How long should it take once the appraisal is in-hand?
• What is your expected cash to close (if purchase or rate and term refinance) or cash out (if cash out refinance)?
• What would cause delays? (i.e. appraisal reveals deferred maintenance that needs to be fixed)

Ensure Terms Are Transparent

Many DSCR lenders do not provide an acceptable level of transparency. You do not want any surprises later in the process. Make sure the DSCR loan terms are clearly presented and you understand exactly when you will be able to lock your terms. As a rule of thumb, you should be able to lock your terms once you have a complete loan file (i.e. you have completed all items requested by the lender and the appraisal has been received and reviewed) and final approval.

Ask Questions

Asking questions will help you think through the proposed financing and give you a clear sense of whether or not the lender is knowledgeable and trustworthy. Get clarity on anything that might be unclear. This keeps the process moving and avoids last-minute surprises.

Lenders will focus on your property’s DSCR—aiming for at least 1.2 is a solid goal (1.0 if your credit score is 720 or higher) —as well as evaluating your overall creditworthiness. Rental property experience is not a requirement though you may be required to hire a property manager if your credit score is below 700.

Common Challenges and How to Tackle Them

DSCR loans can come with a few bumps in the road, but don’t worry—there are ways to get past them. Here’s a look at some common challenges and tips to handle them.

Boosting Your Credit Score

A good credit score can help with loan terms, even if DSCR loans don’t lean heavily on your personal finances. To keep your credit score in top shape:

• Pay bills on time: Late payments or defaults can hurt your score.
• Lower your credit card balances: Aim to keep your credit utilization low.
• Check your credit report: Spot and dispute any errors.

Small improvements can lead to better loan terms - higher LTV, lower interest rate - and can even be the difference between approval and denial!

Why Choose a DSCR Loan?

DSCR loans come with a lot of perks that make them worth considering if you’re in the real estate game. Here’s a quick list of benefits:

• Qualification Based on Property Income: DSCR loans let you qualify based on the property’s income, not your own, which is perfect if your income fluctuates.
• Flexible Credit and Income Requirements: With a focus on property income, credit scores and DTI aren’t dealbreakers.
• Scalability: DSCR loans make it easier to add more income-generating properties to your portfolio.
• Better Terms with Higher DSCRs: A high DSCR ratio can lead to better interest rates and terms since lenders see the property as a lower risk.
• Investment Opportunities: You can pursue a range of real estate opportunities, from rental income to property appreciation, to build long-term wealth.

Why OfferMarket Is Best For DSCR Loans

Loan Amounts & LTV/LTC Matrix

Credit Score	Purchase LTV	Refinance (Rate/Term)	Refinance (Cash-Out)
700+	80%	80%	75%
680–699	75%	75%	70%
Foreign National	65%	65%	60%

Additional Notes:

• Foreign Nationals: +5% LTV allowable if DSCR > 1.30 and 12 months liquidity provided.

• Airbnb/VRBO: Properties have LTV reduced by 5%.

• Loan Amount: Minimum $55,000 – Maximum $3M (higher amounts considered case-by-case).

DSCR Requirements

Requirement	Details
Minimum DSCR	1.00 (Lower DSCR allowed with stricter terms: reduced LTV, higher credit score, higher reserves, investment experience required).
Calculation Method	Monthly Gross Rent ÷ Monthly PITIA (Principal, Interest, Taxes, Insurance, HOA dues) or ITIA (Interest-only).
Short-Term Rentals	80% of cash flow considered; AIRDNA data required (12 months for refinances, all available data for purchases).

Interest Rates

Loan Type	Details
30-Year Fixed	Standard fixed-rate or Interest-only available (10-year IO, slightly higher rate).
Adjustable Rate (ARM)	5/6, 7/6, 10/6 ARMs; Index: 12-month SOFR + Margin (4.5%–6%).
Rate Caps	Initial & Periodic Reset: 2.00%; Lifetime Cap: 5.00% (10/6 ARM initial cap: 5.00%).

Prepayment Penalties

Structure	Details	State Exceptions
Step-Down	5-4-3-2-1, 4-year step-down, or fixed % (e.g., 5% for 5 years).	Prohibited: AK, MN, NM. Max 3 years MI, 1% VA, 2% RI, other state-specific caps apply.
No Penalty Option	Available with higher interest rate.

Property & Portfolio Guidelines

Eligible Properties

• Property Types: Single-family, 2–4 units, condos (warrantable only), townhomes, PUDs.

• Condition Requirements: Lease-ready (Appraisal ratings C1–C4); deferred maintenance ≤3% of property value.

Portfolio Loans

Feature	Details
Minimum Properties	2
Maximum Properties	10 standard, up to 25 for specific programs.
Maximum Loan Amount	$2M standard, up to $6.25M for expanded programs.
Collateral	Cross-collateralization required; 90% occupancy by unit count.

Costs & Fees

Fee Type	Cost
Origination	$2,000 or 1% of loan amount (whichever is greater).
Lender Fee	$1,995 flat.
Appraisal	Paid directly to AMC ($400–$1,200+); existing appraisal ≤90–120 days accepted.

Qualification & Documentation

Borrower & Credit Requirements

Item	Details
Minimum Credit Score	660 (restrictions apply); 680+ recommended for standard terms and better rates.
Down Payment	Minimum 20%; Gift funds allowed after borrower contributes 10%; Seller concession up to 3% subject to lender approval.
Business Entity	Preferred: LLCs or Corporations; Other entity types allowed case-by-case; Foreign Nationals allowed per guidelines.

Required Documentation

Document Type	Specific Items Required
Personal Documents	Credit report, Borrower ID, Spouse/partner ID (if applicable), Primary residence verification.
Entity Documents	Articles of Incorporation, Operating Agreement/Bylaws, EIN letter, Certificate of Good Standing.
Financial Documents	Bank statements (latest 2 months), Verification of mortgage/payoff (if applicable).
Property & Lease Documents	Purchase contract, Appraisal, Insurance, Title docs, HOA docs (if applicable), Lease agreement, Rent/security deposit receipts, Property management agreement (if applicable).

Appraisal Process

• Managed via qualified AMC; Borrower pays AMC directly.

• Inspection and appraisal completed typically within 2 days after inspection.

• Dispute option available if borrower disagrees with appraisal valuation.

Application & Processing

Step	Details
Loan Application	Fully online portal with pre-approval letters (no mandatory hard credit pull).
Conditional Approval	Typically within 15 days from application.
Document Submission	Secure online portal or email; real-time tracking of status and feedback on documents. Most documents e-signable; some require physical/notarized signatures.

Underwriting & Closing

Process	Details
Underwriting Timeline	In-house underwriting; typically completed within 5–8 days once all docs received.
Loan Estimate	Provided quickly via portal (usually within 1 day post-submission); DSCR loans exempt from TRID rules.
Communication	Dedicated Relationship Manager; proactive updates provided daily; responses within same or next business day.

Loan Tracking & Closing

Feature	Details
Tracking System	Real-time dashboard/calendar showing loan status and expected closing dates; automated milestone updates provided.
Closing Timeline	Typically 20–25 days; expedited closing available without additional fees via rush appraisal.
Closing Procedure	Clients sign in person with notary; mobile notary service available. Clients encouraged to choose preferred title/escrow company.
Funding	Same-day funding upon review of signed documents; no rescission period.

Additional Features

Feature	Details
Flexibility for Unique Scenarios	Portfolio loans, interest-only options, ARMs, vacant properties, and foreign national financing supported.
Rate Lock	Rate lock occurs upon loan approval or 3 days before closing, whichever is later.
Investor-Friendly Policies	Supports BRRRR, fix & flip, slow-flip strategies; investor-focused loan structuring.
Transparency on Declines	Detailed reasons provided in rare cases of declines.
Market Insights	Access to marketplace: latest listings, alerts, tour requests, and direct offers; relationship managers provide ongoing investment support.

Key Takeaways for Lenders

✅ Max LTV: Up to 80% for purchases (dependent on credit score).
✅ Competitive Rates: ARM and fixed options tailored to investor needs.
✅ Efficient Process: User-friendly online portal, real-time tracking, and proactive communication ensures fast, smooth closings.

Summary

Qualifying for a DSCR loan can be a solid move if you’re looking to fund real estate investments without relying heavily on your personal finances. By focusing on the property’s income potential, DSCR loans give you a lot of flexibility to grow your portfolio.

Just make sure you’re prepared with the right documents, a solid credit profile, and clear goals. And if any challenges pop up, tackle them head-on to keep the process smooth. With a bit of planning, you can use DSCR loans to reach your real estate goals and build a diverse portfolio.

Frequently Asked Questions About DSCR Loans

What is a DSCR loan?
A DSCR loan is a type of financing for real estate investors that focuses on a property’s income potential instead of the borrower’s personal financial history. If the property makes enough income to cover loan payments, you’re in a good spot for approval.

Why are DSCR loans a good choice for investors?
DSCR loans are based on property income, which is ideal if you have fluctuating personal income or multiple properties. They’re flexible with credit scores and income requirements, making them accessible for many investors.

What DSCR do lenders look for?
Most lenders want to see a DSCR of at least 1.2, which shows the property earns enough to cover its debt. Higher DSCRs can also mean better loan terms.

How important is personal credit for DSCR loans?
Personal credit scores matter a lot more than you may realize! Most lenders require at least a 660 credit score. In order to qualify for max LTV and the lowest interest rates, your credit score should be 720 or higher.

What documents do I need for a DSCR loan?
You’ll generally need income statements for the property, a credit report, and a property appraisal. These documents help lenders assess the property’s income and your financial health.

How do DSCR loans help with portfolio growth?
By qualifying based on property income, DSCR loans make it easier to add income-generating assets to your portfolio, helping you build wealth without depending on personal finances.

What’s the best way to improve my chances of qualifying?
Boost the property’s income potential, manage your DTI, and improve your credit score by paying bills on time and reducing debt.

DSCR Loan Quote

Our mission is to help you build wealth through real estate. Let's grow and optimize your rental property portfolio!

• Get your instant DSCR loan quote today!
• Save big on premiums with our landlord insurance rate shopping service!
• Interested in exclusive investment opportunities? Browse off market properties now!
• Join our Facebook community to stay up-to-date with the latest platform updates and market insights.
• Subscribe to our Youtube channel for our monthly DSCR loan update.