How DSCR Loans Work for Rental Investors

A DSCR loan is a long-term rental loan qualified on the property's debt service coverage ratio — the gross rent the property generates divided by the annual debt payment — rather than your personal income. For buy-and-hold investors, especially self-employed ones, that removes the biggest barrier traditional mortgages impose: documenting W-2 income.

The ratio itself is simple. Take the property's gross annual rent and divide it by the annual debt service (principal, interest, taxes, insurance, and HOA). A DSCR of 1.20 means rent covers the debt by 20%. Most lenders, Capital 26 included, look for a minimum of 1.20. Higher ratios improve your terms; lower ratios may require a reduced loan-to-value.

Because the property qualifies the loan, DSCR financing is repeatable — you can finance multiple 1-4 unit rentals under the same program as you scale your portfolio. No re-stating your income, no tax-return gymnastics each time you add a property.

DSCR loans are best for stabilized, rent-ready 1-4 unit residential investment properties. If you're buying a property that needs renovation, you'll often start with a fix-and-flip or bridge loan and refinance into a DSCR loan once the property is leased and stabilized — the classic BRRRR path.