DSCR Loans for Investment Properties

What Is a DSCR Loan?

A DSCR loan (short for Debt Service Coverage Ratio loan) is a type of mortgage designed specifically for investment properties. Unlike a conventional loan, which requires you to document your personal income through W-2s, tax returns, and pay stubs, a DSCR loan qualifies you based on the income the property generates.

In plain terms: the lender looks at whether the rent covers the mortgage. If it does, you can qualify, even if you're self employed, have multiple properties on your tax return, or your personal income doesn't look great on paper.

How the DSCR Ratio Works

The debt service coverage ratio is a simple formula that compares the property's gross rental income to its total monthly debt payment. Lenders use it to determine whether the property pays for itself.

PITIA stands for Principal, Interest, Taxes, Insurance, and HOA (if applicable). Most lenders want to see a DSCR of 1.0 or higher, which means the rent at least covers the full payment. Some lenders will go as low as 0.75 for strong borrowers, but you'll typically pay a higher rate.

What the numbers mean

• DSCR above 1.25: Strong. The property generates significantly more than it costs. Lenders price this tier best.
• DSCR of 1.0 to 1.25: Acceptable. Most lenders will approve this range. The property cash flows, even if modestly.
• DSCR of 0.75 to 1.0: Some lenders will still approve. Expect a higher rate and stricter terms.
• DSCR below 0.75: Difficult to finance with this product. The property likely doesn't generate enough income to cover the debt.

How to Qualify for a DSCR Loan

Qualification requirements vary by lender, but most DSCR loans follow a similar set of criteria. Here's what you'll typically need.

Credit Score

Most lenders require a minimum credit score of 620, though 680 or higher gets you better rates. At 740+, you'll typically see the best pricing offered on this product.

Down Payment

Expect to put down 20–25% on a standard DSCR purchase. Some lenders allow 15% down for borrowers with high credit scores and strong DSCRs, but 20% is the standard starting point. Cash out refinances are also common. Investors use them to pull equity out of existing properties to fund the next acquisition.

Property Types

• Single family rentals (most common)
• 2–4 unit properties (duplex, triplex, fourplex)
• Condos (warrantable and non warrantable; varies by lender)
• Short term rentals; some lenders accept nightly rental rent schedules
• 5+ unit commercial properties are typically not DSCR; they use commercial underwriting

Reserves

Most lenders require 3–12 months of PITIA in liquid reserves after closing. The exact requirement depends on the number of financed properties you already own and the loan amount.

DSCR vs. Conventional Investment Loans

Both products can be used to finance investment properties, but they serve very different borrower profiles. Here's how they compare side by side.

Factor	DSCR Loan	Conventional Loan
Income Verification	Property income only	Full personal income docs required
Tax Returns Required	No	Varies (none for most W-2 buyers; 2 years if self-employed)
Self Employed Friendly	Yes	Difficult
Number of Properties	Unlimited (lender dependent)	Capped at 10 financed properties (Fannie Mae)
Min. Down Payment	20–25%	15–25%
Interest Rate	Typically 0.5–1.5% higher	Lower, if you qualify
Closing Speed	Often faster (less documentation)	Standard 30–45 days
Best For	Investors, self employed, scale	W-2 borrowers buying first rental

Pros and Cons

What Works in Your Favor

• No income limits. High earners who max out conventional loan limits can keep acquiring properties using DSCR.
• Scale faster. Without a 10 property conventional limit, DSCR lets portfolio investors keep growing.
• Self employed and write off friendly. If your taxable income is low due to business deductions, DSCR doesn't penalize you for it.
• Faster closing. Less documentation means fewer conditions and fewer delays.
• Short term rental friendly. Some lenders accept documented nightly rental income or appraisal based STR projections.

What to Watch Out For

• Higher rates. DSCR loans typically carry a premium of 0.5–1.5% over conventional rates. Run your cash flow numbers with the quoted rate, not a best case estimate.
• Larger down payment. 20–25% is standard. You'll need more capital tied up per deal compared to owner occupied financing.
• Prepayment penalties. Many DSCR loans include 3–5 year prepayment penalties. Read the terms before you sign, because they affect your exit strategy.
• Not for primary residences. DSCR is an investment only product. You cannot use it to buy the home you live in.

DSCR Loans in Salt Lake County

Salt Lake County (including Riverton, South Jordan, West Jordan, Sandy, and Herriman) has been a steady market for DSCR investing in recent years. Rental demand has stayed strong, and south valley rents have held up relative to purchase prices, which kept ratios workable even as interest rates climbed.

Running the Numbers in the $500K–$700K Range

At current rates, a DSCR loan on a $575,000 single family rental in Riverton might look something like this:

This illustrates an important point: at current rate levels, many properties in the $500K–$700K range produce DSCRs under 1.0. That's not a dealbreaker, but the ratio has to come from somewhere. More down improves it, and some lenders will work below 1.0. So can a property where rent runs stronger against price, which often means smaller homes and condos, or small multifamily.

Next Steps

If you're considering a DSCR loan for an investment property in Salt Lake County, the process starts before you ever find a property. Here's how to move forward.

• Know your credit score. Pull your report and resolve any issues before you apply. A score above 700 meaningfully improves your rate.
• Line up a DSCR lender. Not every lender offers this product. Work with a broker or lender who does DSCR regularly; the guidelines vary significantly between lenders.
• Calculate your target DSCR before you make an offer. Get the market rent estimate before going under contract so you know your ratio going in.
• Understand the prepayment penalty. Make sure your hold timeline matches the penalty period. If you plan to sell in two years, a five year prepayment penalty is a problem.
• Talk to a real estate agent who works with investors. The right property for a DSCR loan is not always the same as the right property for an owner occupant. Price point and rent potential matter differently here, and so does property type.