Debt Service
Coverage Ratio
(DSCR) Loans

The debt service coverage ratio measures a property’s annual gross rental income against its annual mortgage debt, including principal, interest, taxes, insurance, and HOA (if applicable). Lenders use DSCR to assess loan affordability based on cash flow.

When calculating DSCR, lenders do not take into account expenses such as:

• Management 
• Maintenance 
• Utilities 
• Vacancy rate
• Repair

Here’s how a DSCR loan works: 

1. Determine property income: The lender works with the borrower to determine the property’s gross monthly rental income. Rental income can be determined by either examining an existing lease or reviewing an appraiser’s comparable rent schedule. You can use our free rent estimator tool in the meantime to get an idea of what you might be able to rent the property for.
2. Account for monthly expenses: The lender will tally up your monthly debt obligations associated with the property, which include principal, interest, taxes, insurance, and HOA fees (PITIA). 
3. Calculate DSCR: Using your monthly income and debt obligations, the lender can calculate DSCR. A DSCR above 1.0 indicates that a property earns enough to cover the mortgage, while a negative DSCR indicates that it does not. 
4. Loan approval based on DSCR: A lending decision for a DSCR loan is made based on the borrower’s DSCR and broader financial profile, as well as property details. No income documentation or tax returns are required. 

You can use a DSCR loan for rental property investments, including single-family homes, multifamily units, and short-term rentals. Lenders approve financing based on how much income the property generates, so you can focus on properties that strengthen your investment strategy and help you grow your portfolio.

Your DSCR changes as income and expenses shift. Rental rates, vacancies, and operating costs all affect the ratio. A strong DSCR signals a lower risk to lenders, while a weaker ratio can limit financing options.

Lenders often use market rent projections or appraisals to calculate DSCR, though some may also consider actual rental income. This flexibility helps investors secure financing for both established properties and those expected to generate strong income after purchase or renovation.

The cons of DSCR loans include the following:

• Large down payments: Most lenders require a large down payment of 20-40%, which may be higher than some conventional mortgages. However, Griffin Funding allows for as little as 15% down.
• Potentially higher interest rates: DSCR loans may have higher interest rates than some conventional investment property loans because they are underwritten based on the property’s rental income rather than the borrower’s personal income. However, recent LLPA (loan-level price adjustment) increases from Fannie Mae and Freddie Mac have pushed conventional investment loan pricing higher, which has narrowed the gap between DSCR and conventional rates. In many market conditions, DSCR pricing can be competitive with — and occasionally similar to — conventional investment loan pricing.
• Limited financing: DSCR loans offer amounts from $100,000 minimum to $20,000,000 maximum. If you’re purchasing properties for under $100,000 or an expensive property in a luxury market for over $20,000,000, these loans might not be suitable for you.
• For rentals only: DSCR loans are for buy and hold rental properties only, so they can’t be used for a primary residence or to fix and flip a home. Instead, you can only use a DSCR loan for a property that generates cash flow. If you plan to flip a home, you’ll need another type of mortgage loan.
• Vacancies: It’s normal for rental properties to have vacancies every now and then. However, you’re not generating any cash flow if you have vacancies. Lenders don’t assess your ability to repay your mortgage if your property or units within the property are vacant, so you could end up getting deeper into debt if you’re not consistently generating cash flow. This does not mean that vacant properties do not qualify for DSCR financing; it means that there are additional restrictions and limitations on properties that are not occupied by a tenant.
• Prepayment penalties: Most DSCR loans come with a prepayment penalty ranging anywhere from one to five years. You will get a lower interest rate in most cases if you opt for a prepayment penalty, however there are many different kinds of prepayment penalties so make sure to discuss the details with your loan officer. DSCR loans are available without pre-payment penalties, and pre-payment penalties can be bought out.
• No fixer-uppers: The property must be move-in ready for tenants and not in need of major repairs, renovations, or construction. DSCR loans are not for properties that need to be rehabbed. The appraiser cannot mark the appraisal “subject to”.
• Unique properties: Unique properties, such as rural properties and those that can’t be compared to other like properties around the area, can be difficult to finance using a DSCR loan.

Most DSCR loans require a down payment of at least 20 to 25 percent. The exact amount depends on the property, lender, and your overall financial profile. A higher down payment may improve your loan terms and lower DSCR loan interest rates. Griffin Funding allows for down-payments as low as 15%.

Lenders typically look for a credit score of 620 or higher for DSCR loans. A stronger credit score may help you secure better terms and lower DSCR loan interest rates. Even if your score is lower, Griffin Funding can review your options to see what works best.

Many lenders will require a 1.25 DSCR to qualify for a DSCR mortgage loan. However, Griffin Funding allows real estate investors to qualify for a loan with a DSCR of less than 1.00.

Please note that borrowers with a good DSCR ratio can secure more beneficial rates and terms on their loans with fewer requirements. Interest rates are best on DSCR ratios of 1.25 or above, while a DSCR ratio of less than .75 requires more down payment/equity and more reserves to offset the negative cash flow.

Keep in mind that for DSCR loans that we fund, the average property has a DSCR of 1.05.

Yes, although qualifying may be more difficult. A DSCR below 1.0 means your rental income does not fully cover the debt, which increases lender risk. Some lenders still approve loans with lower ratios, but often at higher rates or stricter terms.

Some steps you can take to improve your DSCR include:

1. Increasing rental income: Boost rental income by optimizing occupancy rates, increasing rental rates in line with market trends, or offering additional services or amenities to attract tenants. 
2. Refinancing existing loans:Explore refinance opportunities to lower your current rate, increase your loan term, or add an interest-only feature, thereby reducing your monthly debt service obligations. 
3. Increasing property value: Invest in upgrades or renovations to boost property value and command higher rental rates. 
4. Managing your expenses: Cost-saving measures like energy-efficient upgrades, outsourcing maintenance services, or negotiating vendor contracts can help reduce operating expenses. 

No, DSCR loans are only for investment properties. They are designed to help you purchase or refinance rental properties based on income potential. If you want financing for a primary residence, you’ll need to explore other mortgage options.

No, a DSCR loan is not a hard money loan. Hard money loans are short-term and come with very high rates. DSCR loans are structured like traditional mortgages, with longer terms and more favorable interest rates for investors.

PITIA stands for principal, interest, taxes, insurance, and association fees. Lenders compare your rental income to PITIA to calculate DSCR. The lower your PITIA compared to rental income, the stronger your ratio and the easier it is to qualify for financing.

Yes, in many cases gift funds can be used for the down payment or closing costs on a DSCR loan, but eligibility depends on the lender’s specific requirements. At Griffin Funding, gift funds are typically permitted; however, many DSCR programs require the borrower to contribute a minimum of 10% of their own funds to the transaction.

Our team can review your scenario, confirm whether gift funds are allowed for your DSCR loan structure, and help you document them properly to meet underwriting guidelines.

You can connect directly with a Griffin Funding loan specialist. They’ll walk you through DSCR loan pros and cons, current DSCR loan interest rates, and specific requirements. This personalized guidance helps you choose the best loan for your investment goals.

DSCR loans continue to be one of the most popular financing options for real estate investors in 2025. Strong investor demand, expanding rental markets, renewed tax incentives, and rising homeowner equity create a favorable environment for acquiring investment properties this year. Here’s why DSCR loans stand out:

1. Investor activity in the housing market remains strong

Real estate investors continue to play a major role in today’s market. According to Redfin’s Q3 2024 Investor Home Buying Report, investors purchased 15.9% of all U.S. homes sold in that quarter representing roughly $38.8 billion in acquisitions. 

Investor activity is even higher in key rental markets, including:

• Miami: 28.2% investor share
• Anaheim: 24.3%
• San Diego: 23.3%

This sustained purchase activity signals ongoing demand for rental housing — an ideal environment for DSCR-backed financing.

2. Homeowner equity continues to climb, strengthening real estate fundamentals

CoreLogic reports that homeowner equity increased 9.6% year-over-year in Q1 2024, with the average borrower gaining approximately $28,000 in additional equity.

Rising equity:

• Supports property values
• Increases available cash-out opportunities
• Creates a favorable climate for acquiring additional rental properties using DSCR financing

3. Major tax benefits returned under the One Big Beautiful Bill (2025)

The passing of the One Big Beautiful Bill (OBBBB) in July 2025 reinstated 100% bonus depreciation, allowing real estate investors to write off certain property improvements and eligible components in the year acquired.

This renewed tax incentive is expected to drive even more investor demand in the back half of 2025 — making it an opportune time to buy rental properties using DSCR loans.

4. DSCR loans remain one of the strongest segments of the non-QM market

DSCR loans continue to dominate non-QM production due to their flexibility and investor-friendly structure. According to S&P Global Ratings, DSCR loans represented nearly half of the collateral (by balance) in the non-QM securitizations S&P rated between July 2022 and July 2024.

As of mid-2025, industry data shows DSCR loans accounting for roughly 28–29% of all non-QM originations, second only to bank-statement loans — confirming their continued popularity among real estate investors.

5. DSCR financing solves the biggest challenge investors face in 2025: income documentation

Traditional mortgage guidelines have tightened, and conventional loans still limit borrowers to 6–10 financed properties.

DSCR loans offer a streamlined alternative:

• No tax returns or paystubs required
• Qualification based on rental income
• Borrow in an LLC
• Unlimited property count
• Ideal for both short-term and long-term rentals

This makes DSCR financing particularly attractive for scaling a portfolio in a year where investor activity and tax incentives are both rising.

A DSCR loan is perfect for real estate investors who want to qualify using property income instead of personal income. This is especially useful if you are self-employed, own multiple properties, or want to scale your portfolio quickly.

Yes, first-time investors can qualify for DSCR loans. As long as the property meets income requirements, you can use this financing to get started in real estate investing.

Yes, DSCR loans are one of the best ways to build a rental property portfolio. Since approval focuses on property income rather than your personal income, you can keep growing your investments even as you add more properties.

Yes, you can refinance investment properties using a DSCR loan. Refinancing can help you lock in better interest rates, access equity, or restructure debt to improve cash flow.

While DSCR loans can be a helpful financing option for many real estate investors, there are certain scenarios in which using a DSCR loan may not be ideal. Here are some cases where a DSCR loan may not be the best choice:

• You’re buying a primary residence 
• You want to purchase a distressed property 
• You’re interested in a fix-and-flip project 
• You’re purchasing a property worth less than $100,000

The best place is with a lender who specializes in DSCR loans, like Griffin Funding. You’ll benefit from competitive rates, flexible terms, and a team that understands how to tailor financing to your investment strategy.

Griffin Funding is the #1 direct-to-consumer DSCR lender in the United States, helping real estate investors access non-traditional mortgage solutions nationwide. Founded in 2013, Griffin has grown into a trusted leader in DSCR loans, specializing in helping clients qualify based on rental income and property cash flow, not tax returns or W-2s.

Our proprietary Loan Intelligence Assistant (LIA), recently featured by HousingWire, uses AI-driven underwriting to streamline the approval process, reduce manual errors, and fund loans faster. In 2025, Griffin Funding has closed DSCR loans in as little as six calendar days, with an average of just 34 calendar days from application to funding.

Backed by an A+ BBB rating and thousands of 5-star reviews across Google, Yelp, and the BBB, Griffin Funding is proud to serve investors in all 50 states with transparent terms, expert guidance, and exceptional client service.

“Our mission is to empower real estate investors to grow wealth through smarter financing – by combining technology, transparency, and a client-first approach,” says Bill Lyons, CEO of Griffin Funding.

Whether you’re buying your first rental or expanding a multimillion-dollar portfolio, our team of experienced mortgage advisors is here to help you structure the DSCR loan that fits your investment strategy – and your goals.

Here’s how a DSCR loan can help you purchase a short-term rental:

• Short-term rentals are income-producing properties, making DSCR loans a perfect solution for investors who want to use the property’s rental income to qualify for the loan.
• By securing a DSCR loan with favorable terms, investors can potentially lower their borrowing costs and improve cash flow from their STR properties.
• Investors who already own STR properties can also refinance with a DSCR loan to lower their interest rates or access equity through a cash-out refinance. This can provide additional capital for property improvements, expansion, and other investment opportunities.

To get a DSCR loan on a short-term rental, you typically need to meet the following requirements: 

• Minimum credit score of 640 
• Minimum DSCR of 0.75
• Projected annual revenue divided by 12 months to demonstrate sufficient income to cover debts 

Your DSCR directly impacts loan approval, interest rates, and terms. A higher ratio shows lenders that your rental income covers debt easily, which can lead to better rates. A lower ratio may limit options or increase costs.

Some lenders offer temporary rate buydowns on DSCR loans. This option lowers your initial interest rate, making early payments more manageable. Griffin Funding can help you explore whether a rate buydown fits your investment strategy.

DSCR loans are widely available, but not every lender operates in all states. Griffin Funding offers DSCR loans in all 50 states and the District of Columbia.

At Griffin Funding, qualified and organized borrowers can close on a DSCR loan in as little as six calendar days. Thanks to our AI-powered Loan Intelligence Assistant (LIA) and streamlined underwriting process, most DSCR mortgages close within 30 days or less from application to funding.

This efficiency gives real estate investors a competitive advantage, allowing them to secure financing, lock in rates, and close on properties faster than with traditional lenders.