If you own rentals, or want to, the loan that fits most investors is not a conventional mortgage. It is a DSCR loan. DSCR loans qualify you based on the property's rental income instead of your personal income, which makes them a strong fit for self-employed investors and anyone growing a portfolio.
What DSCR means
DSCR stands for debt service coverage ratio. It measures whether the property's rent covers its monthly payment.
DSCR = monthly rent / monthly PITIA
PITIA is principal, interest, property taxes, insurance, and any HOA dues.
A quick example
A single-family rental leases for $2,000 a month. The proposed loan payment, taxes, insurance, and HOA total $1,650 a month.
$2,000 / $1,650 = 1.21 DSCR
A ratio above 1.0 means the rent covers the payment with room to spare. Many lenders look for 1.0 to 1.25 as a minimum, and stronger ratios earn better pricing. At PK, the standard minimum is 1.0, and we have options below 1.0 with a larger down payment or more reserves.
What we do not need
- W-2s or pay stubs
- Personal tax returns
- A debt-to-income calculation
That matters if you write off a lot of income, are self-employed, or already have several mortgages that would push you past conventional limits.
What we do look at
- Rent. An existing lease, or market rent from the appraiser's rent schedule for a vacant or newly renovated property.
- Credit. Your score affects leverage and rate.
- Leverage. Loan-to-value limits differ for purchases, rate-and-term refinances, and cash-out refinances. At PK, purchases go up to 80% LTV and cash-out refinances up to 75% LTV.
- Reserves. A few months of payments in the bank shows you can handle a vacancy.
- Property type. We lend on single-family rentals, 2 to 4 unit properties, condos and townhomes, and short-term rentals.
- Entity. Most DSCR loans close in an LLC, which keeps the debt off your personal credit profile in many cases.
Terms to understand before you sign
- Fixed rate periods. Most DSCR loans offer a 30-year term with a fixed rate or a fixed period followed by an adjustment.
- Interest-only options. An interest-only period lowers the payment and can raise your DSCR.
- Prepayment penalties. Most DSCR loans carry one, often on a step-down schedule like 5, 4, 3, 2, 1 percent over five years. A shorter penalty usually costs a bit more in rate. Pick the structure that matches how long you plan to hold.
How to improve your ratio
If your DSCR comes in low, you have options:
- Put more down. A smaller loan means a smaller payment.
- Shop your insurance. Premiums vary widely, and insurance goes straight into the ratio.
- Consider interest-only. It lowers the payment during the IO period.
- Buy down the rate. Paying points can lower the payment enough to clear the minimum.
- Support higher rent. Strong rental comps or an existing lease above market can make the difference.
Documents to have ready
A DSCR file moves faster when these are in hand up front:
- Current lease, or a rent estimate for a vacant property
- Two months of bank statements showing your down payment and reserves
- An insurance quote with the annual premium
- The property tax bill and any HOA statement
- Entity documents for the borrowing LLC
With these, we can run the ratio on real numbers instead of estimates.
Who DSCR loans are built for
- Investors buying turnkey rentals
- Flippers who decide to hold a property instead of selling
- Investors refinancing out of a bridge or rehab loan
- Self-employed borrowers who do not qualify cleanly on paper
See if your rental qualifies
Send us the address, the rent (or expected rent), and your purchase price or estimated value. We will run the DSCR and tell you where you stand.