DSCR loans vs conventional for investment property: qualify on rent or on income
Two ways to finance a rental: prove you can afford it personally (conventional), or prove the property can pay for itself (DSCR). Most investors start with the first and graduate to the second.
Conventional investment property loans
Fannie Mae and Freddie Mac buy loans on one-to-four unit investment properties with 15% down (one unit) to 25% down (two to four units), a 620+ score with steep pricing adjustments below 740, six months of reserves per property, and full personal income documentation. Rental income counts toward qualifying — 75% of the lease or appraiser’s market rent — but the borrower’s total DTI still governs. The agencies cap a borrower at ten financed properties, and underwriting gets harder after four. Rates carry a loan-level price adjustment that typically adds a half to three-quarters of a point over primary-residence pricing.
DSCR loans
A debt-service coverage ratio loan is a non-QM product offered by private and portfolio lenders. Qualification rests on the property: DSCR = gross monthly rent ÷ monthly PITIA. Most lenders want 1.0 to 1.25 or higher; some allow below 1.0 with a larger down payment and higher rate. No personal income documentation, no DTI, no limit on the number of properties, and the loan can close in an LLC. The price: typically 20% to 25% down, rates one to two points above conventional, prepayment penalties of one to five years, and a 660 to 680 minimum score.
Side by side
| Conventional investment | DSCR | |
|---|---|---|
| Qualifies on | Your income + 75% of rent | Property rent ÷ payment |
| Down payment | 15%–25% | 20%–25% |
| Rate vs owner-occupied | +0.5 to +0.75 pt | +1 to +2 pt |
| Property count limit | 10 financed | None |
| Closes in an LLC | No (individual) | Yes |
| Prepayment penalty | None | Common (1–5 years) |
| Documentation | Full | Lease or market rent, credit, assets |
Which to use
Conventional for your first several rentals if your personal DTI has room: it is cheaper, has no prepayment penalty, and builds a track record. DSCR when personal income no longer supports more loans, when you hold title in an LLC, when you are self-employed with write-offs that shrink taxable income, or when you have hit the ten-property cap. Many investors refinance hard money flips or BRRRR properties into DSCR loans precisely because the rent carries the file.
Frequently asked questions
Does a DSCR loan report on my personal credit?
Usually not when closed in an entity, though the lender pulls your credit and requires a personal guarantee in most cases.
Can I use short-term rental income for DSCR?
Some lenders accept documented Airbnb or VRBO history or a projected short-term rent analysis; others require long-term market rent. Expect a lower allowed LTV for short-term rentals.
Is a DSCR loan a “no-doc” loan?
No. It is income-doc-light, not document-free: credit report, asset statements, lease or appraisal rent schedule, entity documents and insurance are all required.
Sources
Related: BRRRR: refinancing a hard money rehab into a conventional or DSCR loan · Hard money vs conventional loan: speed, cost, and which deal needs which · Conventional loan requirements: credit, down payment, DTI, reserves, property · Cash-out refinance: limits, costs and when it is the wrong tool. Hub: Conventional loan.