Debt Service Coverage Ratio = Monthly Rent / Monthly PITI (Principal, Interest, Taxes, Insurance). A ratio of 1.25 means the property generates 25% more income than its debt obligations. Most DSCR lenders require 1.0–1.25x minimum. The higher the ratio, the stronger the application.
Instead of submitting W2s and tax returns, you provide: a lease agreement or rent schedule, property appraisal, insurance quote, and tax information. The lender evaluates whether the property's income covers the debt. Your personal income doesn't determine approval.
Rates: typically 1–2% above conventional investment property rates. Down payment: 20–25%. Terms: 30-year fixed or 5/1, 7/1 ARMs. Prepayment penalties: common (3–5 year step-down). No W2 verification. Works on single-family, 2–4 unit, and some small multifamily.
Conventional investment loans (Fannie/Freddie) cap at 10 financed properties, require full income documentation, and take 30–45 days to close. DSCR loans have no property count limit, close in 3–4 weeks, and don't count against your conventional loan limit. For investors beyond 4–10 properties, DSCR is often the only option.
Short-term rental income (Airbnb) is treated differently — some lenders use a lower income factor for STR properties. Properties in declining rental markets may not generate sufficient DSCR. Rehab or vacant properties don't qualify — the property must be rentable at acquisition.
Dan White is a licensed Virginia real estate agent at Pearson Smith Realty and founder of FreeDealCalc.com. He has used DSCR loans to finance investment properties across Northern Virginia.