Quick Summary
A DSCR loan lets real estate investors qualify using a rental property’s income instead of tax returns or pay stubs. In Indiana, most programs call for a 640 or higher credit score, 20% to 25% down, and rent that covers the full mortgage payment. These loans are for investment properties only.
What Is a DSCR Loan?
DSCR stands for debt service coverage ratio. Instead of documenting your personal income, the lender looks at whether the property’s rent covers its mortgage payment. That makes DSCR loans a fit for:
- Investors who own several properties
- Self-employed borrowers whose tax returns show low income
- Buy-and-hold landlords adding to a portfolio
You can’t live in the property. For a home you’ll occupy, see conventional home loans.
How DSCR Is Calculated
Divide the monthly rent by the full monthly payment, which includes principal, interest, taxes, insurance, and any HOA dues.
- Rent of $2,000 and a payment of $1,600 gives a DSCR of 1.25
- A DSCR of 1.0 means the rent exactly covers the payment
- A DSCR below 1.0 means the rent falls short
The rent figure comes from the lease or from the appraiser’s market rent estimate.
DSCR Loan Requirements
| Requirement | What to expect |
|---|---|
| Credit score | 640 minimum |
| Down payment | 20% with a 700 or higher score. 25% with a score of 640 to 699 |
| DSCR | 1.0 or higher. Below 1.0 is possible with a 660 or higher score and a larger down payment |
| Loan amount | $100,000 and up. Loans under $150,000 need 30% down and a DSCR of 1.25 |
| Reserves | 2 months of payments for most loans |
| Property types | Single-family homes, condos, and 2 to 4 unit properties. Condos and 2 to 4 units need 25% down |
| Cash-out refinance | Up to 75% of the home’s value with a 700 or higher score |
Program guidelines change. Confirm current terms with me before you make an offer.
Buying Your First Rental Property
First-time investors can qualify, with tighter rules:
- A credit score of 700 or higher
- A single-unit property
- A DSCR above 1.0
- You must already own your primary residence
You count as an experienced investor if you’ve owned and managed a rental for at least one of the past three years.
Prepayment Penalties
Most DSCR loans carry a prepayment penalty, and investors are often surprised by it. Penalty periods run up to five years, and a common structure steps down each year, such as 5%, 4%, 3%, 2%, then 1% of the balance. The period you choose affects your pricing, so match it to how long you plan to hold the property.
Short-Term Rentals and LLCs
- Airbnb and VRBO properties can qualify with 25% down. The lender averages 12 months of rent and reduces it by 20% to cover operating costs.
- Many programs allow LLC ownership, with a personal guarantee from the owner.
DSCR Loans in Northwest Indiana
I work with investors across Lake, Porter, LaPorte, Jasper, and Newton counties. Before you write an offer, I’ll run the DSCR using realistic rents and the property’s actual tax bill, since Indiana caps property taxes on rentals at a higher rate than owner-occupied homes.
I’m also licensed in Illinois and Michigan. Rules differ there: 2 to 4 unit properties aren’t eligible for this program in Illinois, and Michigan doesn’t allow prepayment penalties.
Frequently Asked Questions
Do I need tax returns or pay stubs for a DSCR loan?
No. You qualify on the property’s rent, not your personal income. The lender still reviews your credit, your down payment funds, and your reserves.
How much do I need to put down on a DSCR loan?
Usually 20% with a credit score of 700 or higher, and 25% with a score of 640 to 699. Condos and 2 to 4 unit properties need 25% down.
What credit score do I need for a DSCR loan?
Most programs require a 640 or higher. First-time investors need a 700 or higher.
Is there a prepayment penalty on a DSCR loan?
Usually, yes. Penalty periods run up to five years and often step down each year. The period you choose affects your pricing.
Can I use a DSCR loan for an Airbnb?
Yes, with 25% down. The lender averages 12 months of rent and reduces it by 20% to cover operating costs.
Have a property in mind? Send me the address and expected rent, and I’ll tell you whether it works. Call 219-695-0369 or text me at 219-758-8072.
