← Back to BlogMay 20269 min readDan White
What is a DSCR Loan? How to Use It for Investment Properties
A DSCR loan qualifies you based on the property's rental income, not your personal income. If the property's rent covers the mortgage payment at the required ratio, you qualify — no tax returns, no W-2s, no personal DTI calculation.
DSCR loans have become the dominant financing vehicle for investment rental properties over the last several years. They let investors scale a portfolio without the income documentation constraints of conventional financing. Here's exactly how they work.
Northern Virginia Rental Market
Live Market Data
Washington, DC Housing Market
Cool Market
Data through Mar 2026
Median Sale Price
$590,000
+0.8% YoY
Median Days on Market
44 days
lower = faster market
Sale-to-List Ratio
99.7%
buyers' market
Homes Sold
4,457
last reported month
Source: Redfin Data Center. Updated monthly. Data reflects Washington, DC residential sales.
redfin.comThe DSCR Formula
DSCR = Monthly Rent ÷ Monthly PITIA
PITIA = Principal + Interest + Taxes + Insurance + Association dues. If monthly rent is $2,400 and PITIA is $1,800: DSCR = 2400 / 1800 = 1.33. Most lenders require a minimum of 1.20–1.25.
2026 DSCR Loan Terms
- Interest rates: 6.5–8.5% depending on credit score, LTV, and DSCR ratio
- Down payment: 20–25% standard; some lenders at 15% with higher rates
- Minimum DSCR: 1.20 most lenders; 1.25 is more common
- No-ratio DSCR: Some lenders allow DSCR below 1.0 with lower LTV (0.80–0.90)
- Credit score: 620 minimum; 700+ gets significantly better rates
- Loan amounts: $100K–$5M+ depending on lender
- Property types: SFR, 2–8 units, condos, short-term rentals at some lenders
- Prepayment penalty: Common on DSCR loans — 3, 2, 1 step-down or 5-year penalty structures
DSCR vs. Conventional Investment Loan
- Qualification: DSCR uses property income. Conventional uses your personal DTI (max 45%).
- Rate: DSCR typically 0.5–1.0% higher than conventional investment loans
- Scalability: DSCR doesn't count against your personal debt load — conventional investment loans do
- Documentation: DSCR is much faster and simpler — no tax returns, no employment verification
- Entity: DSCR loans can often close in an LLC. Conventional investment loans typically require individual ownership.
Check If Your Rental Qualifies for DSCR
FreeDealCalc calculates your DSCR ratio automatically — rent, PITIA, and whether you hit the 1.25 threshold — free with Freddie.
Calculate My DSCR Free →When DSCR Doesn't Work
- Rental income doesn't cover PITIA at 1.20+ (negative leverage situation)
- Short-term rental markets where lenders won't use projected STR income for qualification
- Properties that need significant rehab before they can generate market rent
Dan White is a licensed Virginia real estate agent at Pearson Smith Realty and founder of FreeDealCalc.com. He has financed rental properties in Northern Virginia for 20+ years.