DSCR Loans: How Real Estate Investors Can Buy & Hold Properties Without W2 Income

Debt Service Coverage Ratio (DSCR) loans are ideal for real estate investors looking to buy and hold rental properties, especially if you don’t have traditional W2 income. Rather than relying on personal income verification, lenders base DSCR loan approvals on the property's ability to generate income.

Here's how DSCR loans work:

• Understanding DSCR: Lenders calculate DSCR by dividing your property's rental income by your total monthly debt payments (mortgage, taxes, insurance). A DSCR above 1.0 means your rental income covers expenses, making approval likely.

• Loan Criteria: Lenders typically want DSCR scores of 1.1 to 1.3. Higher scores mean better loan terms and lower interest rates.

• Benefits:

  • No personal income verification

  • Ideal for self-employed, gig workers, or investors with fluctuating income

  • Loan amounts primarily based on property cash flow rather than borrower’s credit

• Considerations:

  • Higher interest rates (6-9%) compared to traditional loans

  • Larger down payment requirements (usually 20-30%)

DSCR loans simplify financing rental properties for investors with non-traditional income, allowing you to grow your investment portfolio efficiently.