DSCR Loans
DSCR Loan
DSCR Loans
A DSCR loan (Debt Service Coverage Ratio loan) is an investment property loan in Arizona that qualifies you based on the property's rental income instead of your personal income. There are no tax returns, W-2s, or employment history to document, which makes DSCR loans one of the most flexible ways for real estate investors to finance or refinance a rental property.
How the DSCR Ratio Works
Lenders calculate the ratio by dividing the property's gross rental income by its monthly housing payment:
DSCR = Gross Rental Income ÷ Proposed PITIA
(PITIA = principal, interest, taxes, insurance, and association dues.)
For interest-only loans, the principal is left out, so the ratio is calculated using ITIA (interest, taxes, insurance, and association dues) instead.
For example, a property that rents for $2,500 a month with a $2,000 PITIA payment has a DSCR of 1.25. A ratio of 1.0 means the rent exactly covers the payment.
Key Requirements & Features
Below are the typical DSCR loan requirements we see from our lender network:
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Minimum credit score: 620
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Down payment: Depends on your credit score:
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680+ credit score: 20% down (80% max loan-to-value)
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660-679: 25% down (75% max LTV)
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640-659: 30% down (70% max LTV)
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620-639: 35% down (65% max LTV)
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DSCR ratio: No minimum ratio on most property types. A ratio below 1.0 requires a credit score of 680 or higher. Condos and condotels (condos operated like hotels) require a ratio of at least 1.0
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Loan amounts: $75,000 to $3,000,000. Maximum LTV decreases as the loan amount increases:
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Up to $1.5 million: 80% max LTV
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Up to $2 million: 75% max LTV
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Up to $2.5 million: 70% max LTV
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Up to $3 million: 65% max LTV
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Cash-out refinance: Available up to 75% LTV
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Reserves: 3 months for loans under $1 million, 6 months for loans over $1 million, and 12 months for loans over $2 million
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Property types: Investment properties only, including single-family homes, 2-4 unit properties, and condos. Not available for primary residences
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Title options: You can hold title in your own name or in an LLC, S corp, C corp, or revocable trust
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Prepayment penalty options: 1-year, 2-year, and 3-year options
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Loan terms: 30-year fixed, 40-year fixed, and 5/6 adjustable-rate mortgage (ARM)
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Interest-only option: 10-year (120-month) interest-only period, followed by 20- or 30-year amortization. Requires a credit score of 680 or higher
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Borrower eligibility: U.S. citizens, permanent residents, non-permanent residents, and ITIN borrowers
Who DSCR Loans Are Best For
DSCR loans tend to be the best fit for Arizona real estate investors if you:
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Are building or expanding a rental portfolio and don't want each new loan limited by your personal income
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Are self-employed, or have tax returns that make traditional income qualification difficult
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Want to buy or refinance in an LLC or other entity instead of your personal name
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Own several properties and want each one to qualify on its own rental income
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Have an ITIN or are a non-permanent resident and want to invest in Arizona real estate
Not the best fit if: you're buying a primary residence, since DSCR loans are only for investment properties. A conventional or FHA loan is the right path in that case. If you want to buy a home to live in and you're self-employed, a bank statement loan may fit.
Frequently Asked Questions
What is a DSCR loan and who is it for?
A DSCR loan qualifies you based on a rental property's income rather than your personal income. It's popular with real estate investors, especially those with multiple properties, self-employment income, or complex personal finances.
What are the requirements for a DSCR loan in Arizona?
You'll typically need a credit score of 620 or higher, a down payment of 20-35% depending on your score and loan amount, and 3 to 12 months of reserves depending on the loan size. The property has to be an investment property, and its rent should cover or come close to covering the payment.
Do I need to provide tax returns for a DSCR loan?
No. DSCR loans qualify you based on the property's rental income, not your personal tax returns, W-2s, or employment history.
What is a good DSCR ratio?
A ratio of 1.0 or higher means the rent covers the full payment, and it's the standard target. Many programs also allow ratios below 1.0 with a credit score of 680 or higher. Condos and condotels need at least 1.0.
How much down payment do I need for a DSCR loan?
The minimum is 20%, for borrowers with a 680+ credit score. Scores of 660-679 need 25%, 640-659 need 30%, and a 620 score needs 35%. Larger loan amounts also require more down payment, since the maximum LTV drops from 80% to 65% as loans approach $3 million.
How much can I borrow with a DSCR loan?
Loan amounts range from $75,000 to $3,000,000 through our lender network. As the loan amount goes up, the maximum LTV goes down and reserve requirements increase.
Can I do a cash-out refinance with a DSCR loan?
Yes. Cash-out refinances are available up to 75% loan-to-value, so you can pull equity from a rental property to fund your next purchase.
Can I buy a rental property in an LLC with a DSCR loan?
Yes. You can hold title in an LLC, S corp, C corp, or revocable trust, which many investors prefer for liability and organizational reasons.
Is there an interest-only DSCR loan?
Yes. Our lender network offers an interest-only option with a 10-year interest-only period, followed by 20 or 30 years of amortization. You'll need a credit score of 680 or higher, and the DSCR ratio is calculated using ITIA (interest, taxes, insurance, and association dues) instead of the full PITIA payment.
What is a prepayment penalty on a DSCR loan?
A prepayment penalty is a fee for paying off the loan early, usually by selling or refinancing within a set period. Our lender network offers 1-year, 2-year, and 3-year options, so you can match the term to how long you plan to hold the property.
Can ITIN borrowers or non-permanent residents get a DSCR loan?
Yes. Our lender network accepts U.S. citizens, permanent residents, non-permanent residents, and ITIN borrowers.
Do DSCR loans have higher rates than conventional loans?
Alternative loans often carry higher rates when you go through a single lender. Because we compare options across our network of lenders, we're frequently able to find DSCR rates that are competitive with conventional pricing. We'll show you real numbers so you can compare for yourself.
How do I get started with a DSCR loan in Arizona?
As a licensed Arizona mortgage broker, we compare DSCR loan options across our network of lenders. Reach out for a free consultation to discuss your investment property.
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Tell us a little about what you’re looking for, and one of our Arizona loan officers will reach out. No pressure, just options.
