DSCR Loans: How and When to Use Them

DSCR loans — short for debt service coverage ratio loans — are underwritten primarily based on the income the property generates, not the borrower’s personal financials. For brokers, they offer a streamlined path to financing investment properties, especially smaller multifamily and commercial assets.

But they're not for every borrower, and they come with unique lender expectations. This guide, part of our larger guide to commercial property financing, breaks down what to know, where they fit, and how to package these deals to close.

What Is a DSCR Loan?

A DSCR loan evaluates the property's net operating income (NOI) against its annual debt payments. You can get a good breakdown of what the DSCR metric is (and isn't) here. The main point, though, is that lenders use this ratio to decide if the deal can cover itself — usually without needing to examine tax returns or global cash flow.

• Typical DSCR minimum: 1.20x to 1.30x
• Common loan size: $500K to $5M (sometimes more)
• Assets: Small multifamily, mixed-use, retail, SFR portfolios
• Borrowers: Often investors with multiple properties

These are sometimes called "lite-doc" or "no-income-verification" loans — but that doesn’t mean low diligence. The property’s numbers still have to pencil.

When DSCR Loans Make Sense

They work well when:

• The property has strong in-place cash flow
• The borrower has good credit but complex income or entity structures
• Speed and simplicity are important
• The borrower doesn't want to submit full tax returns or financials

Common deal types:

• Cash-out refis on stabilized rentals
• Purchases of leased-up investment properties
• 2- to 8-unit multifamily or small commercial

These are especially helpful for borrowers who wouldn’t qualify for agency or bank debt due to documentation hurdles.

What Lenders Look For

• Property DSCR: Typically 1.25x or better to hit top leverage
• Appraisal strength: Valuation and rent comps drive the numbers
• Credit score: Many lenders require 660+ (some allow lower)
• Occupancy: Must be leased or near full
• Use type: Most prefer residential, mixed-use, or clean retail

Lenders rarely care about tax returns — but they do care deeply about the deal's math.

What Brokers Often Miss

1. Overestimating rents

If market rent comps aren’t realistic, the appraisal can blow up the deal. Don’t rely on pro forma numbers.

2. Ignoring DSCR thresholds

Just because a property cash flows doesn’t mean it meets the lender’s DSCR requirement. Do the math upfront.

3. Missing credit overlays

Some DSCR lenders have silent deal killers — like no short-term rentals, or minimum property size. Check early.

4. Assuming every lender is the same

These vary widely. Some are national non-bank lenders. Others are local shops with niche preferences.

5. Failing to prep the borrower

It may be "lite doc," but borrowers still need to provide clean rent rolls, leases, IDs, insurance, and more. Get that checklist ready.

What to Do If Your Borrower Doesn’t Qualify

If your borrower falls short — maybe their credit is too low, DSCR is borderline, or the property is partly vacant — there are still options:

• Add a co-borrower with stronger credit
• Use a DSCR lender with lower thresholds (though this usually means higher rates)
• Reduce loan amount to improve DSCR
• Refinance post-stabilization — close short-term now, DSCR later
• Switch to bridge debt if the deal needs repositioning

You can’t force fit a DSCR loan, but you can often pivot.

Tips to Place These Deals

• Run DSCR math yourself before quoting
• Order the rent roll and lease copies early
• Ask about short-term rental or property type restrictions
• Prep the borrower for closing costs and reserves
• Target lenders that specialize in this space — don’t take a shotgun approach

In Short: DSCR Loans Aren't For Everyone

DSCR loans can be efficient and powerful for the right deals — but they’re not one-size-fits-all. Know how the math works, manage borrower expectations, and pair each deal with the right lender.

If you package it cleanly and match the lender profile, these can close fast — and become a repeatable part of your broker business.