DSCR Loans Explained (2026): Rates, Requirements & Examples for Investors

DSCR loans continue to soar in popularity among real estate investors for their rental income focus. DSCR loans explained simply are mortgages that give investors the option to qualify with their property’s income-generating potential. Because terms are tied to the DSCR metric, these mortgages offer mid-credit borrowers the ability to gain substantially better terms than they would with conventional loans or hard money loans. 

A DSCR (Debt Service Coverage Ratio) loan is a mortgage for real estate investors that qualifies borrowers primarily based on a property’s rental income rather than personal income like W-2s or tax returns. In 2026, DSCR loans are one of the most popular financing tools for rental properties, short-term rentals, and LLC-owned investments because they allow investors to scale portfolios without traditional debt-to-income limits.

Here’s what you can expect from this article:

TL;DR

• DSCR loans allow qualification based on a property’s rental income in addition to traditional proof of income like W-2s or tax returns.
• As non-qualified mortgages, DSCR loans allow alternative qualification methods, LLC borrowing, and unlimited property counts.
• Your Debt Service Coverage Ratio (DSCR) determines eligibility, rates, LTVs, and loan amounts.
• DSCR loans often have higher rates than conventional loans. However, rates and terms improve with DSCR, not personal income or DTI.
• Expect down payments of 15-25%, credit scores starting around 640–680, and average rates around 0.5% to 2% above conventional loan rates. 
• DSCR loans can be used for long-term rentals, short-term rentals, cash-out refinances, construction, and interest-only strategies.
• Prepayment penalties tend to be more common for DSCR loans than conventional loans. You may need to wait up to 5 years to be able to refinance, sell, or otherwise pay off the mortgage early.

DSCR Loans: What Are They?

A DSCR loan is a non-QM investment mortgage that uses a property’s net operating income to determine loan eligibility instead of borrower income.

DSCR Formula: DSCR = Net Operating Income (NOI) ÷ Total Annual Debt Service

Lenders may calculate NOI differently. Some use actual expenses, while others apply expense ratios or market assumptions.

In a nutshell, here are DSCR loans explained: DSCR loans are mortgages for income-generating properties that give borrowers the option to qualify using their property’s income. Conventional loans, by contrast, mainly rely on traditional income docs like tax returns and W-2s to qualify borrowers. 

DSCR or debt service coverage ratio loans are able to offer this option because they are non-qualified mortgages (non-QM). Non-QM loans aren’t required to follow the lending guidelines set by the Consumer Finance Protection Bureau, allowing them to adopt more flexible structures, such as qualifying based on rental income, bank statements, or liquid assets.

Since qualification can be based on the rental income of a property, investors can potentially get better rates if they choose properties with excellent income potential. Properties making several times what they need to meet operational expenses and debt obligations can get competitive rates even if your credit score is mid-range. If your credit score surpasses the 760 mark, you can unlock the best terms, such as LTVs up to 85%, loan amounts up to $6M, and rates as low as 5.999% depending on the loan criteria*.

*Given lowest possible rate is for a $1,000,000 mortgage on a single-family GA home, at 55% LTV, 1.26 DSCR, 800 FICO, 5-year pre-pay, and 6 months’ reserve. As of December 29th, 2025.

At Defy Mortgage, DSCR loans are our bread and butter. Our DSCR loans, as well as our other non-QM investment loans, such as bank statement loans and asset depletion loans, are all fully customizable from the ground up to be a perfect fit to your specific investment goals and overall situation. 

Debt Service Coverage Ratio: How To Calculate + Example

Debt Service Coverage Ratio (DSCR) is a figure that’s used by lenders to determine whether a real estate investment is generating enough income to cover its debt payments. For DSCR loans, the DSCR figure is used in lieu of the borrower’s income, which is typically used for conventional loans.

3 Steps to Calculate the Debt Service Coverage Ratio

DSCR is calculated by dividing the property’s net operating income (NOI) by the total debt service (including interest and principal payments).

This ratio helps lenders determine whether the property is making sufficient income to “pay for itself.” A DSCR above 1 suggests that the property is generating enough to meet its debt obligations. Meanwhile, a DSCR below 1 would suggest that the property isn’t generating enough income to fully cover debt payments. To put this figure in perspective, see the two examples below of a strong DSCR vs. a weak DSCR.

1. Find your net operating income (NOI): NOI is the income your property makes per year after deducting all operating expenses, such as repairs and maintenance, from the annual rental income. Since tenants pay for their own utilities in most rentals, the only operating expenses are maintenance expenses. For this, we can use the One Percent Rule of maintenance, which states that you should set aside at least 1% of the property’s market value at the time of purchase for maintenance each year. Subtract this from its yearly income, and you arrive at the NOI.
2. Find your total debt service (TDS): Your annual total debt service includes all fixed periodic payments that need to be made over the course of a single year, including your annual mortgage debt (principal and interest), as well as property taxes, insurance, and miscellaneous fees such as homeowners’ association dues.
3. Divide your NOI by your TDS: Once you’ve determined both your NOI and your TDS, simply divide the two to arrive at your DSCR. A DSCR above 1.0 means the property makes more than or just enough to cover its annual debt obligations, while a number below 1.0 means that it only makes a percentage of that.

Examples of Debt Service Ratio Calculations

Example 1

Property 1 is a duplex with a purchase price of $250,000. At a 7.5% interest rate, the total monthly payments are $1,748 for a 30-year fixed mortgage. Since this property is a duplex, each unit is renting out for $1,500 per month for a total of $3,000 per month for the entire property. Assuming the 1% rule that estimates annual maintenance expenses to be equal to 1% of the property’s value, $2,500 is spent yearly on maintaining the property.

Annual debt service: $1,748 x 12 = $20,976

Annual operating income: $3,000 x 12 = $36,000

Annual operating expenses: $250,000 x 1% = $2,500

Annual net operating income: $36,000 – $2,500 = $33,500

Using the DSCR formula:

Net Operating Income / Annual Debt Service

= $33,500 / $20,976

= 1.60

In this example, Property 1’s annual net operating income is enough to cover the debt obligation by 1.6 times, which means it has a fairly strong DSCR.

Example 2

Property 2 is a single-family home with a purchase price of $250,000. At a 7.5% interest rate, the total monthly payments are $1,748 for a 30-year fixed mortgage, and the property rents out for $1,800 per month. Assuming the 1% rule that estimates annual maintenance expenses to be equal to 1% of the property’s value, $2,500 is spent yearly on maintaining the property.

Annual operating income: $1,800 x 12 = $21,600

Annual net operating income: $21,600 – $2,500 = $19,100

= $19,100 / $20,976

= 0.91

In this example, Property 2’s annual net operating income isn’t enough to fully cover the debt obligation. Even though the monthly rent exceeds the monthly mortgage payment by $52 per month, after taking into account annual maintenance, it’s insufficient to cover it.

DSCR Loan Down Payment Requirements

For DSCR loans, the down payment requirements can vary depending on the lender. Generally, the down payment requirement ranges between 10% to 30% of the property’s purchase price. Several factors can also impact the down payment requirements for a DSCR loan, such as:

• Lender policies: Different lenders have their own risk tolerance and minimum down payment requirements for DSCR loans.
• Loan amount and term: Larger loan amounts or shorter terms might involve stricter down payment requirements.
• Property type: Loans for certain property types, like multi-unit buildings, might require higher down payments compared to single-family homes.
• Borrower profile: Strong creditworthiness and experience with investment properties can potentially secure lower down payment options.

It’s important for borrowers to discuss specific down payment requirements with potential lenders during the loan application process.

DSCR Loan Credit Score Requirements

While specific credit score requirements depend on the lender, DSCR loan credit score requirements can typically range between 620 and 700. Though most lenders require a minimum credit score of 680, some may be willing to accept lower scores as low as 620, depending on other factors like your DSCR ratio and down payment amount.

Having a strong DSCR figure can potentially offset lender concerns about a slightly lower credit score. Additionally, a larger down payment would result in a lower loan-to-value ratio (LTV), which would also reduce the lender’s risk. Even though some lenders might be open to allowing lower credit scores, keep in mind that higher credit scores, like 700 or above, generally unlock better interest rates and loan terms.

Despite credit score being an important element, other factors like the financial performance of the property and the borrower’s financial stability can also play a significant role in the loan approval process. For the most accurate and up-to-date information on specific lender requirements for DSCR loans, it’s recommended to contact them directly prior to applying.

DSCR Loan Pros and Cons: Explained

If you’re still evaluating whether a DSCR loan is right for you, here’s a convenient list of the pros and cons of this mortgage type to help you make an informed decision:

Pros:

1. Alternative income documentation permitted: A DSCR loan does not require income documents like W2s, pay stubs, or tax returns, making it ideal for self-employed individuals and those with non-traditional income sources. 

2. Flexible borrower criteria: DSCR loans allow alternative income verification in the form of rental income. This makes them more accessible to self-employed workers and other individuals with non-traditional income sources.
3. Available to foreign nationals: Some lenders, like Defy Mortgage, offer foreign national options for DSCR loans. At Defy Mortgage, our foreign national DSCR loans allow up to 70% LTV and a max amount of $3M for foreign nationals with no US credit score or Social Security number. 
4. Faster closing times: Qualifying with mainly rental income leads to fewer documents to review, speeding up the underwriting process. At Defy Mortgage, our average timeline is 30-45 days, but we’ve closed in as few as 14.
5. Improved rates with higher income: A higher income usually means a higher DSCR, which in turn leads to better rates and terms. DSCRs above 1.25 usually bring the best rates.
6. LLC borrowing: Unlike conventional loans, DSCR loans allow you to purchase under an LLC to separate your investments from your personal finances. 
7. No hard property cap: Conventional loans place a cap of 10 actively financed properties on each borrower. DSCR loans place no such restrictions. Finance as many properties as you need.

Cons:

1. Potential for higher down payments: Most lenders require a minimum of 20-25% down, which may limit the access of DSCR loans to investors with less capital. At Defy Mortgage, our lowest down payment option is 15%, available to borrowers with 740+ FICO and DSCR >= 1.000.
2. Prepayment penalties: These are more common for non-QM loans like DSCR loans. In general, DSCR borrowers are required to pay a fee if the loan is paid off, refinanced, or sold early.
3. Higher rates: Non-QM loans typically have higher rates than conventional investment property mortgages. In general, you can expect DSCR loan rates to be 0.5% to 2% higher than conventional loan rates.
4. Limited availability: Since DSCR loans are specialized loan products, the selection of lenders may be limited. When shopping around for a lender, make sure to check whether they specialize in DSCR loans.
5. Requirements can vary: Since they’re not standardized like QM loans, lenders can place their own requirements on DSCR loans. At Defy Mortgage, for example, we only provide DSCR loans for a specific set of property types.
6. Market volatility: Downturns in the rental market, particularly vacancy periods, can affect your ability to repay the loan and even loan terms if you opt for an adjustable-rate structure. This is why cash reserves are essential.

If you’d like to read more, we go further in-depth on the pros and cons of DSCR loans in a dedicated article. 

The DSCR Loan Application Process

Specific loan application processes for DSCR loans may vary among lenders, but here is a general overview: 

1. Document preparation: Be ready to prove rental income and operating expenses to speed up financial performance analysis and DSCR calculation. Gather these essential documents:
   • Bank statements
   • Credit reports
   • Purchase contract
   • Lease agreements
   • Rent roll
   • Property insurance declarations
   • Property tax statements
   • Operating expense documentation
2. Choose a lender: Evaluate your options by considering each lender’s terms, interest rates, requirements, and specialization. Defy Mortgage specializes in DSCR loans! Check out our top DSCR lender article to learn more about what we do best.
3. Get pre-approval: Pre-approval gives you extra leverage over competing buyers and gives you an estimate on your loan amount, and thus your price range.
4. Submit the formal loan application: Complete and submit the lender’s formal loan application. 
5. Property appraisal: The lender will order an appraisal and rent schedule to verify the property’s value and market rent.
6. Underwriting process: The underwriting team will review your application and documentation. Additional documentation might be requested by the lender during this step. 
7. Approval and closing: Once you gain approval, the lender will specify the terms and conditions of the loan. They will then schedule a closing date for agreement signing. Once signed, the funds are disbursed and the property title is transferred.

The DSCR Loan Closing Process 

The closing process for a DSCR loan is the final stage in securing financing for your investment property. While the process might be different depending on your lender, here’s a general overview of what you should expect: 

1. Pre-closing review: This stage includes title search and insurance to ensure the property is free of liens. This is also the part where you review loan documents such as the promissory note and the deed of trust. Doing so with legal and financial advisors is advisable to confirm the terms protect your interests.
2. Coordinating the closing date: The lender will coordinate with you to set a date when the necessary documents are signed and the transaction is officially completed. Make sure all necessary funds are ready by then, including down payment, closing costs, and reserves.
3. Document signing: On the agreed-upon date, all borrowers and guarantors must be present to sign all required documents at the closing meeting. Review the details of the transaction, such as the loan amount, interest rate, closing costs, and any adjustments. 
4. Closing: After the document signing, the lender transfers the loan amount to either the seller’s account or the escrow agent. All legal documents are filed with the proper authorities to officially transfer the property title to your name. 
5. Post-Closing: Complete any post-closing requirements specified by the lender, which could include submitting additional documentation, providing proof of homeowners’ insurance, and making your first loan payment according to the schedule. 

Each lender’s closing process may vary. Remember to be prompt with your communication and be ready with any required documents to ensure a smooth transaction. 

Types of DSCR Loans

Interest-Only DSCR Loans

While not all DSCR loans are interest-only, many of them offer an interest-only option. This option allows the borrower to make only interest payments during the loan’s introductory period, typically between three and ten years. Paying only the interest during this period means that your monthly payments are significantly lower compared to a traditional loan that would incorporate both principal and interest in the monthly payments according to an amortization schedule.

Not only are your monthly payments smaller, but you may be able to reap additional tax benefits by deducting interest expenses. The extra cash can then be used for other investments or expenses, like renovations or repairs. Interest-only DSCR loans can be a valuable tool for real estate investors who are looking to maximize their cash flow during the beginning stages of owning the property. 

Even though interest-only DSCRs can sound enticing due to lower payments for the first few years, borrowers usually have to transition to monthly payments that incorporate both interest and principal after the specified interest-only period. This means that their monthly payments can be expected to jump in comparison to their initial interest-only payments. On top of that, interest-only DSCR loans increase the overall cost of the loan when you factor in the total interest paid over time. 

Keep in mind that not all DSCR lenders offer interest-only options, so if this is a non-negotiable loan feature for you, it’s important to shop around for lenders and evaluate your options carefully. At Defy Mortgage, we offer up to 80% LTV, 660 FICO, > 1 DSCR for Interest-Only DSCR loans.

DSCR Construction Loans

When it comes to construction loans, DSCR construction loans are different from traditional ones. Traditional construction loans typically focus on the project’s costs, along with the borrower’s income and credit score, which is more in line with a conventional loan in terms of eligibility requirements. Meanwhile, DSCR construction loans have a strong focus on the property’s income potential in the future. 

Lenders use the DSCR metric to determine the property’s ability to generate enough income to cover the construction loan interest on top of future mortgage payments. Using this figure, lenders can also evaluate how viable the project is and whether the borrower has the capacity to manage the debt effectively. 

In the commercial real estate world, DSCR construction loans can be beneficial for real estate developers who are looking for financing during the construction phase since the income-generating potential of the future property plays such a large factor in eligibility.

DSCR Cash-Out Refinance Options

For real estate investors looking to unlock equity in their properties, DSCR cash-out refinance options can be a great option. These involve refinancing an existing mortgage to help investors cash out equity from their property while still maintaining its income-generating potential. 

A DSCR cash-out refinance differs from a traditional cash-out refinance due to the way that the lender assesses borrower eligibility. Instead of using the borrower’s income and personal credit score, the lender uses the property’s DSCR figure to determine whether the income generated by the property can cover both the existing mortgage and the additional borrowed amount.

Leveraging the property’s strong income performance allows the borrower to access cash for a variety of purposes, like renovations and repairs, debt consolidation, or other investment opportunities. Please note that at Defy Mortgage we do not offer 85% LTV for cash-out and only go up to 80% LTV for DSCR Cash-out refinances.

DSCR Loans for Airbnb and Short-Term Rentals 

Since DSCR loans are designed for investment properties, using a DSCR loan to fund an Airbnb or short-term rental is common. Instead of using the borrower’s income as a main factor to be eligible, lenders use the property’s income from short-term rentals to determine the property’s DSCR. If the property has a strong DSCR, meaning it generates enough income to cover its debt obligation, lenders will heavily take that into account for DSCR loans. 

However, since income from short-term rentals can fluctuate, lenders will typically consider historical rental performance, occupancy rates, and the location of the property. A DSCR loan recognizes the unique revenue stream of Airbnbs and short-term rentals and offers a tailored financial solution for real estate investors looking for their next venture. 

30-Year Fixed-Rate DSCR Loans

30-year fixed-rate DSCR loans are the most common type of DSCR loans that investors opt for. With a longer term, amortization spreads out over a longer period, lowering the borrower’s monthly debt obligation for that property. However, this also means that you will have to pay interest for a longer period of time, ultimately making the loan cost more than a shorter-term mortgage. 

Choosing a 30-year term for a DSCR loan over a 15-year, 10-year, or even 5-year term is a matter of balancing the cost-benefit of overall cost vs immediate cost. One of the reasons investors usually choose 30-year DSCR loan terms is that a lower monthly debt burden leads to a higher DSCR, which, in the context of a DSCR loan, leads to better rates and terms. 

15-Year Fixed Rate DSCR Loans

These tend to be slightly less common than 30-year fixed DSCR loans. With a shorter loan term, you’ll have to pay more per month, but you’ll pay less in interest overall. This is an especially important factor if you’re aiming to refinance or sell somewhere down the line. A lower overall cost means less to pay off when replacing your previous DSCR mortgage with a new one, whether it’s a DSCR cash-out refinance or a conventional loan for lower rates.

DSCR Home Equity Loans and HELOCs 

For property owners who are looking to leverage the equity in their properties, DSCR home equity loans and HELOCs offer a unique solution. DSCR home equity loans and HELOCs use the DSCR metric to evaluate the property’s income-generating potential rather than the borrower’s credit score and income. Using this metric allows property owners to access funds based on the property’s ability to cover both the existing mortgage payments and the additional debt. 

Unlocking the equity in a property using a DSCR home equity loan or HELOC can help secure funding for other purposes like renovations and repairs, education, other investments, or debt consolidation. For real estate investors, these specialized financing options can be beneficial since the property’s cash flow potential plays a big role in eligibility.

DSCR Loans for Foreign Nationals

Various DSCR loan types are also available to foreign nationals, with or without a US credit score, SSN, or permanent residency (alternative credit verification required if no FICO score). At Defy Mortgage, we offer loan amounts up to $3M to foreign nationals, with LTVs up to 70%.  

4 Tips to Improve Your DSCR

DSCR loan approval and terms depend on your property’s Debt Service Coverage Ratio, so increasing it is beneficial for any investor interested in using this mortgage option. Here are some of the most effective ways you can do that:

1. Raise Rental Income

Selecting a property with better rental income potential is one of the surest ways to maximize your DSCR and get the best terms. If you already own a rental property and want to take out a DSCR refinance on it, you can improve your DSCR beforehand by conducting improvements. Things that increase rental income include amenities and services that are attractive to tenants, such as parking spaces, modern appliances, more storage, and other curb appeal enhancements such as fresh paint and landscaping. 

2. Decrease Your Overhead

A major limiting factor to DSCR is the cost of operating your property. This directly impacts your NOI (net operating income) because NOI is the difference between your gross annual income and annual operating expenses. You can minimize operating costs by investing in improvements such as energy-efficient fixtures and preventative maintenance that lets you save on repairs over the long term. 

3. Choose a Longer Amortization

A longer amortization structure means lower loan payments per year, reducing the total debt service (TDS) per year. A lower TDS leads to a higher DSCR. 

Note that while this can yield a lower mortgage rate, a longer amortization period also leads to more interest paid over time. Remember to consult with your lender to determine whether a longer amortization would lead to more cost savings in the long term.

4. Take Advantage of Additional Revenue Potential

You can further add to your property’s NOI by tapping into additional revenue sources, such as offering advertising space to companies. Note that not all lenders consider non-rent income when calculating your DSCR.

DSCR Loans vs Conventional Loans

To illustrate exactly how DSCR loans are designed to maximize returns from investment properties, let’s compare their attributes to those of conventional investment loans:

	DSCR Loan	Conventional Loan
Income verification focus	DSCR	Borrower income, verified traditionally using tax returns, etc.
Proof of income examples	Lease agreementsComparable rent analysis (Fannie Mae Forms 1007 and 1025)Rent rollsTax returnsW-2 formsPay stubs	Tax returnsW-2 formsPay stubs
Loan-to-value (LTV)	75%-85% LTV (equivalent to 15%-25% minimum down)	75%-85% LTV (equivalent to 15%-25% minimum down)
Minimum credit score	640-680+	620-640
Maximum loan amount	$6,000,000+	$832,750 for single-family
Property eligibility	Allowable property types at Defy Mortgage: Single-family homesPlanned Unit DevelopmentsTown homesRow homesSite-built condosModular homesMulti-family rentals (2-4 units)Vacation homesAirbnb/VrboWarrantable condosNon-warrantable condosCo-opsCondotels  Property must generate enough cash flow to meet the lender’s minimum DSCR (0.55 at Defy Mortgage, no-ratio available for borrowers with 740+ FICO)	Primary homesSecondary homesVacation homesModular homes (must be built on a fixed foundation).Warrantable condos only.Some lenders may allow STRs, condotels, and co-ops, but they are less common.
Occupancy requirements	Owner-occupied properties not allowed	Can be owner-occupied primary home, secondary home, or vacation home
Seasoning options	Has no-seasoning options	Requires seasoning
Maximum property cap	None!	Only 10 financed properties at a time
LLC borrowing	Yes	No
Current rate	5.999%  *Rate given is for a $1M mortgage on a single-family GA home, at 55% LTV, 1.26 DSCR, 800 FICO, 5-year pre-pay, and 6 months’ reserve, as of December 29th, 2025	6.25%  *Rate given is for a $320K single-family detached home to be used as a primary residence, at 80% LTV and 740 FICO, as of December 29th, 2025
Foreign national availability	Yes. Available to non-residents as well	Yes, but the borrower must be a legal US resident

If you’d like to read more on the differences between DSCR and conventional loans, we dive deep into that comparison in this article. 

DSCR Loan Mistakes to Avoid

Some of the most common mistakes investors make with DSCR loans include:

• Overlooking prepayment penalties: DSCR loans can have prepayment penalty periods of up to five years. Make sure yours has transpired before refinancing or selling.
• Misjudging expenses when estimating DSCR: Make sure to properly account for vacancy rates, property management fees, and other expenses, especially for STRs.
• Failure to properly analyze the local market: Effective real estate market analysis is essential to ensure that your location is not prone to economic downturns that would increase occupancy rates and hurt your rental income.

DSCR Loan Example for Airbnb vs Long-Term Rental

The most obvious difference between something like an Airbnb vs a long-term residential rental is seasonal income. In some cases, although Airbnb’s might only peak for a few months, the income they generate during the high season can outweigh the more consistent income of a long-term rental, leading to a higher DSCR and better terms. For example:

Consider an investor purchasing a $500,000 3-bed, 2-bath property with a monthly mortgage payment of $3,000 in 2026.

If this property is operated as a long-term rental, situated in an ideal neighborhood in Miami, it can generate around $3,900 per month in gross rent. If we assume that maintenance is the only operating expense, the NOI would be 12 months x $3,900 subtracted by 1 percent of the property’s value per the One Percent Rule.

For the property’s total debt service, let’s assume you the property’s tax rate is the same as the average effective property tax rate in Miami-Dade County: 0.85%. That’s a yearly property tax of $3,695. Assuming HOA fees around $2,000 per year and insurance at $1,800 per year, that puts your total debt service at:

Given this NOI and TDS, we can compute the DSCR like so:

That puts our long-term rental just 4% shy of breaking even between its net operating income and total debt payments. 

Contrast that with an STR scenario:

Let’s say you buy a similarly priced, comparable property near Miami Beach, where Airbnbs command an average of $266 a night in the low season (Jul – Oct), and over $300 during the high season (Dec – Mar). In the shoulder months (Apr-Jun and Nov), the price per night settles at around $271.

At peak occupancy during the high season (average 61%), that means 18 nights out of every 30, your property will have guests. At $300 per night, that’s $5,400 per month. Over 4 months, that’s $21,600 – already half the yearly income of the comparable long-term rental. 

In the shoulder months, when occupancy winds down or starts to ramp up, you can expect occupancy rates around 50%. That means an average of 15 nights a month, you’ll be making $271 per night, or $4,065. That’s $16,260 over the whole season.

As for the remaining months, assuming the lower average of $266 and the average low-season occupancy of 42.7%, you’ll be earning for 12-13 nights out of every 30. That’s still $3,192 per month or $12,768 over the rest of the year. That gives us a grand total of $50,628, before deducting operating expenses.

Although STRs can have more operating expenses than long-term rentals, it’s common for hosts to charge guests cleaning fees, utilities, and a general service fee to offset these. If we assume your only operating costs would be maintenance, with similar debt obligations as the long-term rental, we can reuse the DSCR calculation from before:

In contrast to the long-term rental scenario, our hypothetical STR is actually 4% above the break-even point. At Defy Mortgage, this makes it eligible for LTVs up to 85% and loan amounts up to $6M, pending borrower FICO score. 

How Defy Mortgage Can Help You With a DSCR Loan

DSCR loans make acquiring and refinancing properties more accessible to a wider range of borrowers, and at Defy Mortgage, we make it even easier. Here’s how Defy Mortgage DSCR loans can help you scale your investment portfolio at your own pace :

• Minimum DSCR: Down to 0.55
• No-ratio DSCR loans available for borrowers with 740+ FICO
• Max LTV: Up to 85% LTV for purchase (5% higher than the industry average), 80% for cash-out
• Minimum loan amount: down to $75,000, opening up more options for small-scale investors
• Maximum loan amount: Up to $6M
• Unlimited cash-on-hand pending LTV
• Minimum credit score: 640 FICO
• Available to foreign nationals
• No seasoning options available
• Options to purchase under LLC ownership
• ARM and interest-only options available
• State Licensing: Defy Mortgage is able to process DSCR loans in all states except for the following states: Alaska, Arizona, Idaho, Michigan, Minnesota, Nevada, New Jersey, North Dakota, Oregon, South Dakota, Utah, Vermont and Virginia

Top States Where Defy Can Help You With DSCR Loans in 2026

Since DSCR loans are typically catered towards real estate investors, states with growth in the real estate sector and large metropolitan areas often attract more investors. These states include: 

1. California
2. New York
3. Texas
4. Florida
5. Illinois
6. Georgia
7. Massachusetts
8. Washington
9. Colorado
10. North Carolina

Key Takeaway

The real value of DSCR loans explained in practical terms boils down to a few key strategic advantages: faster closing times, self-contained mortgages with no property cap, and rental income-based terms. 

Drawbacks like higher average rates, prepayment penalties, higher down payments, and market volatility do have to be accounted for. However, these can be significantly mitigated through thorough research on properties and the local market and doing your own in-depth DSCR analysis. Read up on our article on top 10 mistakes to avoid when applying for a DSCR loan to learn more on how you can do that.

If DSCR loans sound like the right move for you, Defy Mortgage can put you on the fast track to use them to fuel rapid, unlimited portfolio expansion. Schedule a call with us or reach us directly at (615) 622-1032 and we’ll have a dedicated Mortgage Consultant with you right away to discuss your investment strategy and work on a tailored DSCR solution.

If you’re a mortgage broker, Defy TPO can give you access to Defy Mortgage’s suite of industry-leading non-QM loan products. Each of our offerings are targeted at underserved sectors of the market, letting you carve out a niche that bigger lenders aren’t equipped to touch. Want to know how we do it? Send us one of your trickiest pricing scenarios, and we’ll demonstrate. .

Frequently Asked Questions

DSCR Loans vs. Conventional Loans 

In terms of their lending approaches, DSCR loans and conventional loans are vastly different. More commonly used in commercial real estate, DSCR loans determine eligibility mainly based on how much income the property is generating. On the other end of the spectrum, conventional loans use a broader range of eligibility criteria. Here’s a quick comparison:

	DSCR Loans	Conventional Loans
Main criteria	At least 1.00 DSCR (0.55 at Defy Mortgage)	Sufficient personal income, credit score, and liquid assets
Documentation	LeasesMarket rent analysisRent rolls	Tax returnsW-2 formsPay stubs
Minimum credit score	640	620
Loan-to-value (LTV)	75%-85%	75%-85%
Minimum cash reserves	3 months’ reserve	6 months’ reserve
Maximum amount	$6M+	$832,750 for a one-unit property

Are DSCR loans allowed for primary residences?

DSCR loans are typically available to real estate investors who want to acquire income-generating properties. The main metric used to determine eligibility is DSCR, which calculates whether an investment property’s income can pay off its debt obligation. 

Since primary residences are usually owner-occupied, they don’t generate any rental income. If the property isn’t generating any income, the DSCR figure would automatically be zero. For primary residences, lenders offering traditional mortgages would judge eligibility by the borrower’s income, credit score, DTI, and other factors that indicate financial stability. 

If you’re looking for loan options for your primary residence, it’s recommended to explore the traditional mortgage options that are offered by lenders. 

What is a good DSCR ratio?

Most lenders look for a DSCR ratio of at least 1.25, with some going as low as 1.0. DSCR is the ratio of a property’s income compared to its debt obligations after deducting operational expenses. 1.0 means it breaks even, while 1.25 means it makes 25% more than it needs to cover its mortgage payments and other obligations, so a DSCR of 1.25 or more is generally considered good.

How does a DSCR loan work?

DSCR loan programs work by assessing how a property’s net income compares to its annual mortgage payments, taxes, insurance, and other fees, such as HOA fees. This yields the Debt Service Coverage Ratio, which tells the lender whether its income can support a loan of a specified amount. The DSCR is the basis upon which approval and terms are determined, with higher DSCRs unlocking higher loan amounts and better rates.

Is a DSCR loan hard to get?

DSCR loans can actually be much easier to get than conventional mortgages, but this depends on the specifics of your investment. If you have less-than-perfect credit, but your selected property can make more in profits than its debt payments, it can be much easier for you to get a DSCR loan than other types of investment property loans. 

However, if your property has a low DSCR (lower even than our minimum of 0.75 at Defy), you may have to seek alternatives, such as a P&L loan to qualify with business income instead, or an interest-only DSCR loan to minimize your monthly payment for up to 10 years, giving your investment breathing room to build up profitability.

Are DSCR loans suitable for short-term rental properties?

Yes, most DSCR loans allow short-term rentals, but remember that lenders often have their own set of eligible property types. At Defy Mortgage, however, we allow various types of STRs, from vacation homes and Airbnb/Vrbo properties to condotels. We also have a specialized DSCR program designed to maximize the returns you can get from STRs.

What documents are needed for a DSCR loan application?

The exact documents you need can depend on the lender and your exact investment situation, but in general, you’ll need the following:

• Bank statements to prove you have sufficient funds for reserves, down payment, and closing costs
• Credit reports (lenders may simply ask for your permission to pull these)
• Purchase contract
• Lease agreements
• Rent roll
• Property insurance declarations
• Property tax statements
• Documentation on operating expenses

Can I get a DSCR loan as a Foreign National?

Absolutely. Unlike conventional loans, which usually require you to be a legal resident, foreign national DSCR loans are open to non-residents as well. Defy Mortgage allows up to 70% LTV and loan amounts up to $3M for foreign nationals seeking DSCR loans. No SSN required, no FICO score required with alternative credit options.

Who are the highest LTV DSCR lenders for real estate investors?

Per our latest research, the top lenders with the highest DSCR LTVs are Defy Mortgage, Griffin Funding, Angel Oak Mortgage Solutions, American Heritage Lending, and BrightPathLoans, all tied at 85%. At Defy Mortgage, our 85% LTV option unlocks for borrowers with 740+ FICO and DSCR >= 1.000.

Where can I get a DSCR loan?

You’re most likely to find DSCR loans offered by non-QM lenders, particularly those who focus on catering to investors. At Defy Mortgage, DSCR loans are our main offering. Each loan is fully customizable and is supported by Mortgage Consultants with decades of experience in various real estate markets throughout the US, guaranteeing guidance that reflects real-world market conditions.