Programme
DSCR Investment Loan
Qualified on what the property earns, and written outside the consumer mortgage rules.
A DSCR loan is underwritten on the debt service coverage ratio: the rent the property produces divided by what the property costs to carry. Your pay stubs, your tax returns and your personal debt ratio are not part of the decision. That is the appeal, and it is genuinely useful for an investor whose returns show a small taxable income. What sits behind it is more important than the convenience — because the loan is for a business purpose on a property you will not live in, the consumer protections that govern a mortgage on your own home do not apply to it at all.
- Qualified on rent against PITIA
- No personal income documentation
- Non-owner-occupied only
- Outside Regulation Z's consumer rules
Floor four
What it gives you
Your tax returns are not the obstacle
Depreciation and legitimate deductions make a profitable rental portfolio look thin on a return. A DSCR loan does not look at the return, so the write-offs that make a conventional approval hard are simply not in the calculation.
The number of properties you own is usually not a ceiling
Fannie Mae caps a borrower at ten financed properties. DSCR investors typically do not, which is why the product exists at all for anyone building a portfolio beyond that point.
It can be closed in an entity
Most DSCR programmes will lend to an LLC, which is how many investors want to hold property. Agency loans on investment property generally require the individual to be on title.
The decision is about the property, so it is faster
A rent schedule or an executed lease, an appraisal, and a credit report replace the employment and income file. Less documentation genuinely means a shorter process here.
Floor three
What this programme costs you
Every programme buys you something by charging you something else. This is the half a brochure leaves out, and it is the half that decides whether the programme is right for you.
- Trade-off 01
You are outside the consumer mortgage protections entirely
Regulation Z does not cover credit extended primarily for a business purpose, so a DSCR loan on an investment property is not subject to the ability-to-repay rule, is not a Qualified Mortgage, and carries none of the protections attached to being one. The Loan Estimate and Closing Disclosure regime does not apply either. This is not a technicality: it changes what the lender owes you and what remedies exist if something goes wrong. It is a commercial transaction with a commercial character, and it should be read that way.
- Trade-off 02
Prepayment penalties are normal here, and they are not small
Because Regulation Z's restrictions do not reach it, a DSCR loan can and usually does carry a prepayment penalty — commonly a step-down over three to five years. Selling the property or refinancing it inside that window has a price, often expressed as a percentage of the balance. Ask for the exact schedule before you sign, and check whether a sale is treated differently from a refinance.
- Trade-off 03
The ratio is calculated on market rent, and vacancy is not its problem
The DSCR is computed from an appraiser's rent schedule or an executed lease. Neither promises the property will be occupied, that a tenant will pay, or that the roof will last. The loan qualifies on an assumption; you carry the reality, and with no personal income in the file there is nothing else supporting the debt.
- Trade-off 04
It costs more, in every dimension
Larger down payment, higher pricing, reserve requirements and points. The lender is taking property risk without an income file behind it and prices accordingly. A conventional investment-property loan, where you can qualify for one, is usually cheaper.
Floor two
The published rules, and where they come from
These are rules, not prices. This site publishes no rates, so what follows is the part of the programme that is written down somewhere a third party can check.
| Rule | What it says | Source |
|---|---|---|
| What qualifies the loan | The debt service coverage ratio: gross market rent divided by the property's principal, interest, taxes, insurance and association dues. Personal income and personal debt ratios are not used. | Investor programme guidelines — there is no federal or agency DSCR programme |
| Regulation Z does not apply | Credit extended primarily for a business or commercial purpose is outside Regulation Z. A DSCR loan on a non-owner-occupied investment property is therefore not subject to the ability-to-repay rule and is not a Qualified Mortgage. | 12 CFR 1026.3(a); 12 CFR 1026.43(a) |
| Prepayment penalties | Permitted, and common. The restrictions in 12 CFR 1026.43(g) apply to consumer credit and do not reach a business-purpose investment loan. | 12 CFR 1026.3(a); 12 CFR 1026.43(g) |
| Occupancy | Non-owner-occupied only. Occupying the property breaches the terms of the loan and the business-purpose basis on which it was written. | Investor programme guidelines; 12 CFR 1026.3(a) |
| How rent is established | Usually the appraiser's single-family comparable rent schedule (Form 1007) or an executed lease. Programmes commonly take the lower of the two. | Investor programme guidelines; Fannie Mae Form 1007 |
| Down payment, credit and reserves | There is no public minimum. Each is set by the investor holding the loan and can change without notice. | Investor programme guidelines |
Floor one
Who it fits
The usual guidelines. Every one of them is a starting point that an underwriter reads against the whole file, so treat a line you miss as a conversation rather than a closed door.
- The property must be non-owner-occupied — an investment property, not a home you live in
- A debt service coverage ratio at or above the programme's threshold, computed on rent against principal, interest, taxes, insurance and any association dues
- Market rent evidenced by an appraiser's rent schedule or an executed lease
- A credit score and a down payment set by the investor, both typically higher than agency requirements
- Post-closing reserves, often several months of the property's full carrying cost
- Title may be held personally or, on most programmes, in an entity
Ground floor
How it goes, top to bottom
Compute the ratio before you make an offer
Market rent divided by principal, interest, taxes, insurance and dues. If the ratio is short of the programme threshold, more down payment is the usual lever — and knowing that before you are under contract is worth a great deal.
Get the prepayment schedule in writing
Ask what the penalty is, how it steps down, and whether a sale is treated the same as a refinance. This is the term most likely to cost you money later and the one least likely to be volunteered.
Appraisal with a rent schedule
The appraiser values the property and provides a market rent opinion. That opinion, or a signed lease, is the income side of the whole underwriting.
Underwriting on the property
Credit, reserves, entity documents if applicable, insurance, and the ratio. Personal income documentation is not part of it.
Closing
Read the note, and specifically the prepayment clause and any assignment-of-rents provision. The consumer disclosure regime does not apply here, so the note is the document that governs.
DSCR against a conventional investment-property loan
| Feature | DSCR | Conventional investment loan |
|---|---|---|
| What qualifies it | The property's rent against its carrying cost | Your personal income, debts and credit |
| Tax returns | Not used for income | Required, usually two years |
| Consumer protections | Business-purpose, so Regulation Z's ability-to-repay and QM rules do not apply | A consumer loan; ability to repay applies |
| Prepayment penalty | Common — often a step-down over three to five years | Prohibited on a non-QM and tightly restricted on a QM |
| Number of financed properties | Usually not capped | Capped at ten financed properties under the Selling Guide |
| Holding in an entity | Generally permitted | Generally requires the individual on title |
| Cost | Higher pricing, larger down payment, reserves | The cheaper of the two where you can qualify |
This table scrolls sideways on a narrow screen.
Questions this raises
What DSCR do I need?
It is set by the investor, not by a rule, so it differs between programmes and it moves with credit conditions. What is consistent is the mechanism: the higher the ratio, the better the terms, and a ratio below the threshold is usually fixed by increasing the down payment until the payment falls far enough. Work the ratio out yourself before making an offer rather than discovering it in underwriting.
Does the ability-to-repay rule protect me on a DSCR loan?
No, and it is important to be clear about that. Regulation Z applies to consumer credit; a loan made primarily for a business purpose on a property you will not occupy sits outside it. That means no ability-to-repay obligation on the lender, no Qualified Mortgage status, no QM presumption of compliance, and none of the consumer disclosure regime. The trade for that is speed and access; the cost is that you are transacting commercially.
Can I live in the property later?
Not without addressing the loan. Occupancy is a condition of the note and the whole basis on which the loan sits outside the consumer rules. Moving in is a breach, and it can make the loan callable. If your intentions change, the honest route is to refinance into an owner-occupied loan.
Why is there a prepayment penalty?
Because the investor is buying a stream of interest and prices the loan on the assumption it will be there for a few years. Regulation Z limits prepayment penalties on consumer mortgages severely, but a business-purpose investment loan is not a consumer mortgage, so the limits do not apply. Treat the penalty schedule as one of the loan's main terms and price your exit around it.
Put your own numbers through it
What would the payment actually be? The monthly payment page prints the rule it followed beside the answer, and the address bar carries your inputs so the link you send is the answer you saw.
Or read every programme side by side.