DSCR Loans Explained: How Investors Qualify on Rental Income

Why investors use private lending

Most people qualify for a mortgage on their personal income. The lender asks for pay stubs, W-2s and two years of tax returns, then decides how much debt that income can support.

Real estate investors often have trouble with that process. Their income may run through an LLC. Their tax returns may show less income than they actually earn, because depreciation and business expenses reduce the taxable number. And once someone owns several rentals, conventional loan limits and paperwork start to get in the way.

Private lenders built products for this situation, and the DSCR loan is one of the most common. If a rental property brings in enough rent to cover its own mortgage payment, the lender can qualify the loan on the property. Tax returns and pay stubs stay out of the file.

How DSCR is calculated

DSCR stands for debt service coverage ratio. It compares the rent a property brings in to the full monthly cost of the loan on that property.

DSCR = Gross monthly rent ÷ PITI

PITI is the full housing payment: principal, interest, property taxes and insurance. If the property has HOA dues, many lenders add those too.

A worked example

A single-family rental leases for $2,400 a month. The loan payment is $1,600, property taxes run $350 a month, and insurance is $150 a month.

• Gross rent: $2,400
• Principal and interest: $1,600
• Property taxes: $350
• Insurance: $150
• PITI total: $2,100
• DSCR: $2,400 ÷ $2,100 = 1.14

A DSCR of 1.14 means the rent covers the payment with 14 percent to spare. A ratio of exactly 1.0 means the rent covers the payment and nothing more. Below 1.0, the property earns less than it costs each month, and the investor makes up the difference.

The ratio affects both approval and pricing. A higher DSCR usually means better terms, because the property has more room to absorb a vacancy or a repair.

Who DSCR loans are for

DSCR loans are business-purpose loans for investment property. The borrower does not live in the home. Common uses include:

• Buying a long-term rental
• Refinancing a rental to pull out equity for the next purchase
• Refinancing out of a short-term hard money loan after a renovation
• Financing a short-term rental, a condo, a small multifamily building or a portfolio of rentals

The borrowers tend to be self-employed investors, people who already own several properties, and anyone whose tax returns understate what they actually earn.

What lenders look at besides the ratio

The property’s rent carries the file, but lenders still look at the borrower and the deal. Requirements vary by lender, and the common checkpoints are:

• Credit score. A minimum score set by the lender, with better pricing at each higher tier.
• Down payment or equity. Typically 20 to 25 percent of the purchase price, or that much equity on a refinance.
• Reserves. Cash on hand to cover several months of payments.
• Rent. A signed lease, or an appraiser’s estimate of market rent for a vacant property.
• Property type. Single-family, 2 to 4 units, condos and some larger multifamily, depending on the lender’s program.
• Borrowing entity. Many DSCR lenders lend to LLCs, and some lend only to LLCs.

Terms you will hear

Private lending has its own vocabulary. These are the terms that come up most on a DSCR loan.

Non-QM

Short for non-qualified mortgage. A loan outside the standard rules that government-backed lenders follow, which is what lets a DSCR lender skip personal income documents.

LTV

Loan-to-value. The loan amount as a percentage of the property’s value. A $300,000 loan on a $400,000 property is 75 percent LTV.

Prepayment penalty

A fee for paying the loan off early, usually during the first few years. A step-down structure like 5-4-3-2-1 charges 5 percent of the balance in year one, 4 percent in year two, and so on. Investors who expect to sell or refinance early pick a shorter structure and usually pay a slightly higher rate for it.

Seasoning

How long the borrower has owned the property, or how long an LLC has existed. Some lenders require a minimum before they will refinance or lend.

Cash-out refinance

Replacing an existing loan with a larger one and taking the difference in cash, often to fund the next purchase.

Term sheet

The lender’s written summary of the proposed rate, loan amount and terms, issued before full underwriting.

What sets the rate

DSCR rates usually run above conventional mortgage rates. These loans have no government agency backing, and the lender is taking on a file without personal income documents. In early November 2026, published 30-year fixed DSCR rates for strong files sat roughly in the high 6 to low 7 percent range.

Every loan is priced on its own scenario. The biggest factors are:

• Credit score. Pricing improves at each tier.
• LTV. More equity in the property means a lower rate.
• The DSCR itself. A ratio well above 1.0 prices better than one right at 1.0.
• Loan purpose. A purchase usually prices better than a cash-out refinance.
• Prepayment structure. A longer penalty period usually buys a lower rate.
• Property type. Single-family rentals price differently from short-term rentals, condos or multifamily.

A quote only means something when it is built on the actual property, the actual rent and the borrower’s actual credit.

Where Brick City Capital fits

Brick City Capital is the DSCR lending division of Leverage Companies. It works with real estate investors directly and with the mortgage brokers who bring them deals, in 46 states.

The program follows the same math described above. Brick City Capital underwrites on gross rent over PITI, with a minimum DSCR of 1.0x and no tax returns required. Loans are made to LLCs. Programs cover single-family and portfolio rentals, short-term rentals, non-warrantable condos, multifamily, bank statement loans and a hybrid of DSCR and bank statement qualification. Investors coming out of a hard money loan after a renovation can refinance into a long-term DSCR loan.

On timing, Brick City Capital issues a term sheet within 24 hours, opens appraisal and title on day one, and closes in 21 days on average. The team has closed more than $800 million in loans.

Have a rental in mind? Send the scenario to Brick City Capital at brkcty.com and get a term sheet within 24 hours.