What is a DSCR loan?
A DSCR loan is a mortgage on an investment property that is underwritten on the property’s cash flow, not the borrower’s W-2 or tax return. DSCR means debt service coverage ratio. You divide the property’s gross rent (or market rent) by the proposed PITIA. A result of 1.25 means the property covers the payment one and a quarter times.
This is why DSCR loans have no agency underwriting finding. Agency AUSs underwrite people. DSCR underwrites the building.
DSCR is rent divided by the property’s monthly payment
DSCR equals monthly rent (or market rent) divided by monthly PITIA. PITIA is principal, interest, taxes, insurance, and HOA if any. Some lenders apply a vacancy factor to rent before they divide.
Below 1.00, the property does not cover the payment. Some programs still allow it with more equity or reserves. From 1.00 to 1.14 is tight, and often needs compensating factors. 1.15 to 1.24 is a common minimum band. 1.25 and up means the property covers the payment with room. These bands are market patterns, not a LoanPASS product spec. Every investor writes their own floor.
Run the math on the DSCR loan calculator.
DSCR loans are for rental property investors, not owner-occupants
A DSCR loan fits a borrower buying or refinancing a rental who cannot or does not want to qualify on personal income. Self-employed investors, foreign nationals on some programs, and landlords with many doors are the usual files. It does not fit a primary residence. That is a different loan, with a different AUS.
The ratio is one input. Lenders decide the file on a whole stack of rules
A DSCR file is a stack of rules: a DSCR floor (1.00, 1.15, 1.25, or a grid by FICO and LTV), an LTV cap, months of PITIA in eligible assets, a credit floor, property type and appraisal rules for what counts as rent, and investor overlays on prepay, seasoning, entity vesting, and experience.
Those rules differ by investor. That is why a scenario desk exists, and why two lenders can return two answers on the same rental. A non-agency automated underwriting system encodes that grid and returns approve, review, or rejected with findings. The ratio is one input. The decision is the whole box.