DSCR Loans in UtahQualify With the Property's Rent
Your tax returns show write-offs, not what your rentals really earn, and that can stall a traditional investment loan. A DSCR loan qualifies the property on its own rent, so you can keep growing your portfolio.
- No personal income verification
- LLC vesting allowed by many lenders
- Single-family to 4 units
What is a DSCR loan?
A DSCR (debt service coverage ratio) loan is an investment-property mortgage that qualifies you based on the property's rental income instead of your personal income. Lenders divide monthly rent by the full monthly payment; a ratio of 1.0 or higher means the rent covers the payment.
Reviewed by Kenny Farshchian, NMLS #1639863Updated
Does the rent cover the payment?
DSCR lenders divide the property's monthly rent by its full monthly payment (principal, interest, taxes, insurance and HOA dues). Try your numbers.
- Monthly rent
- $2,800
- Total monthly payment (PITIA)
- $2,220
Rent comfortably covers the payment. Many DSCR lenders offer their best pricing at this level.
For illustration only; not a loan offer or commitment to lend. DSCR minimums, rates and terms vary by lender. Rent is typically verified with a lease or an appraiser's rent schedule.
DSCR loan vs. conventional investment loan
| Feature | DSCR loan | Conventional investment loan |
|---|---|---|
| How you qualify | Property's rent vs. its payment | Your personal income and debt-to-income ratio |
| Tax returns | Usually not required | Required |
| Typical down payment | 20% to 25% | 15% to 25% |
| Own in an LLC | Often allowed | Generally not allowed |
| Number of properties | No fixed limit with many lenders | Limits on financed properties |
| Rates | Usually somewhat higher | Usually lower |
Requirements vary by lender and property. We compare DSCR and conventional options for each deal.
Is a DSCR loan right for you?
DSCR loans trade a slightly higher rate for much simpler qualifying. They tend to make the most sense for:
- Self-employed investors whose tax returns understate their real income
- Investors with several financed properties who've hit conventional limits
- Buyers who want to hold rentals in an LLC
- Investors buying single-family homes, condos, townhomes or 2- to 4-unit properties
What DSCR lenders usually look for
Every lender sets its own rules, but most DSCR programs look at a similar list:
- A DSCR around 1.0 or higher, with lower ratios possible on some programs
- Credit scores often starting around 640 to 680, with better pricing above 700
- Several months of payments in reserves after closing
- Rent verified by a lease or an appraiser's market rent estimate
DSCR Loan Questions
Many DSCR lenders look for a ratio of 1.0 or higher, meaning the rent covers the full monthly payment. Some programs accept ratios below 1.0 with a larger down payment, and ratios of 1.25 or more usually get the best pricing.
Typically 20% to 25% for purchases, depending on your credit score, the DSCR and the property type. Refinances generally require similar equity.
Many DSCR lenders allow you to vest the property in an LLC, which is one reason investors like these loans. Expect to provide your LLC documents and a personal guarantee.
Some lenders accept short-term rental income, often using an appraiser's or market-data estimate of nightly rental income. Rules vary widely, so we match you with lenders that fit your property and city's rental rules.
Many do, commonly for the first one to five years. Shorter or no prepayment penalties are often available for a slightly higher rate, so it's worth comparing based on how long you plan to hold the property.
No. DSCR loans are for investment properties only. For a home you'll live in, conventional, FHA, VA or USDA loans are usually a better fit.
Have a property in mind?
Send us the address and expected rent. We'll run the DSCR and compare lenders before you make an offer.