How to Get a DSCR Loan, Step by Step

To get a DSCR loan, you line up a rental property whose rent can support its monthly housing payment, gather your credit, asset and property documents, decide how you will hold title, and then compare written terms and apply with a lender that offers DSCR programs. The appraisal and rent schedule confirm the numbers, underwriting reviews the file, and you close. Each step below explains what happens and what you can prepare ahead of time.

Step 1: Confirm the property fits a DSCR loan

DSCR loans are for one to four unit residential property you rent out or hold for income: a single-family house, a condo, a townhouse, or a two to four unit building. Buildings with five or more units use commercial financing, which is a different category.

The property must be a true investment property. Fannie Mae defines an investment property as one you do not occupy as a principal residence or second home, including one held mainly as a rental. Misrepresenting occupancy on a loan application is mortgage fraud. If you plan to live in the property, owner-occupied loans are other options to look at instead.

Check the property's condition too. Many DSCR lenders want a property that is rent-ready. If it needs major work, a short-term rehab or bridge loan followed by a DSCR refinance may be a better path to ask about.

Step 2: Estimate the rent and the payment

Before you make an offer, run the ratio yourself. The ratio is the property's rent divided by its monthly housing payment, which includes principal, interest, taxes, insurance and any association dues. A ratio above 1 means the rent covers the payment.

• Base the rent on an existing lease or on comparable rentals nearby, not on a hopeful guess.
• Look up the real property tax bill, since taxes can change after a sale.
• Get an actual insurance quote, including flood coverage if the property needs it.
• Confirm any association dues and whether the association allows rentals.

Lenders set their own minimum ratio, and some accept a ratio below 1 with other strengths. Remember that the ratio does not include repairs, vacancy or management, so budget for those separately.

Step 3: Review your credit

A DSCR loan qualifies mainly on the property's cash flow instead of personal income documentation, but your credit still matters a great deal. Pull your credit reports, check them for errors and dispute anything wrong well before you apply. Avoid opening other credit accounts or taking on large debts while you are shopping for the loan.

Step 4: Gather and document your funds

Expect a larger down payment than an owner-occupied loan would need, plus closing costs and cash reserves left over after closing. Lenders verify where the money comes from, so keep it in accounts you can document with statements.

• Savings and investment accounts are the simplest to document.
• Cash-out from another property you own can be a source; the lender will review that loan's documents.
• Proceeds from a 1031 exchange involve tax rules, so talk to a tax professional or attorney.
• Gift rules on business-purpose loans vary by lender, so ask before you count on a gift.

Step 5: Decide how you will hold title

Many DSCR lenders allow the loan to be made to an LLC. If you go that route, set up the entity before you apply. Lenders commonly ask for the articles of organization, the operating agreement, the entity's EIN and a certificate of good standing from the state. Many also ask the owners to sign a personal guaranty.

Whether an LLC makes sense for you, and how it affects taxes and liability, is a legal and tax question. Talk to a tax professional or attorney before you decide.

Step 6: Talk to a loan officer and get written terms

Share the property details, your rent and payment estimates, your credit picture, your funds and your vesting plan. A licensed loan officer can tell you whether the scenario may fit and which programs to consider.

Ask for the terms in writing. DSCR loans on investment property are usually business-purpose loans, and rules and disclosures differ from a home loan, so ask the loan officer which apply to your loan. You might receive a Loan Estimate, the standardized form the CFPB describes, or a term sheet. Either way, read every line.

Step 7: Compare offers line by line

DSCR loans are not standardized, so comparing matters. For each offer, look at:

• The interest rate and any points, and how they trade against each other.
• The prepayment penalty: whether there is one, how long it applies and how it is calculated. Many DSCR loans carry one; ask how it works before you sign.
• Whether the rate is fixed or can change, and whether there is an initial interest-only period.
• Lender fees and third-party closing costs.
• Reserve rules and which accounts count.
• Which rent figure the lender will use and how short-term rental income is treated.
• Rate lock terms and what happens if closing is delayed.

Step 8: Apply and submit documents

Once you choose an offer, complete the application. A typical DSCR document list includes:

• Government-issued photo ID.
• Authorization to pull credit.
• Bank or investment statements for the down payment, closing costs and reserves.
• The signed purchase contract, or for a refinance, the current mortgage statement.
• Any current lease and, if asked, proof that rent is being paid.
• Entity documents if the borrower is an LLC.
• Insurance quotes and association contact information.
• A schedule of other real estate you own.

Sending complete, legible documents at the start is one of the simplest ways to keep a loan moving.

Step 9: Appraisal and rent schedule

The lender orders an appraisal. For a single-family rental, the appraiser often completes Fannie Mae Form 1007, the Single-Family Comparable Rent Schedule, which gives a market rent opinion based on comparable rentals. The appraised value affects how much you can borrow, and the rent figure drives the ratio.

If the value or rent comes in lower than expected, the loan amount, the ratio or the terms may change. Ask the loan officer about your options, such as bringing more cash, renegotiating the price or adjusting the loan.

Step 10: Underwriting and conditions

The underwriter reviews credit, the ratio, reserves, the appraisal, title, insurance and any entity documents. You will likely receive conditions, which are requests for more information or documents. Answer them quickly and completely. Every loan is subject to credit approval, and programs vary by borrower, property and investor.

Step 11: Closing

Before closing, you should receive the final figures to review. Compare them with your written terms and ask about any change. At closing you sign the loan documents, and if an LLC is the borrower, you sign on its behalf and sign any personal guaranty. The lender funds and the mortgage is recorded.

After closing

• Keep your reserves in place for vacancies and repairs.
• Keep leases, rent records and insurance current, since you may need them for a future refinance.
• Note when any prepayment penalty period ends.
• Keep the LLC in good standing with the state if you used one.

Getting a DSCR loan is mostly about preparation. When the property, the rent, your funds and your documents are lined up before you apply, the process tends to go more smoothly, though no timeline or outcome is certain.

Frequently asked questions

Next steps

• DSCR Loan Requirements
• DSCR Loans
• DSCR Loan Requirements in Florida
• DSCR Loan Requirements in New York
• DSCR Loan Requirements in New Jersey
• DSCR Loan Requirements in Pennsylvania
• DSCR Loan Requirements in Connecticut
• DSCR Loan Requirements in Virginia

Sources

• Fannie Mae Selling Guide: B2-1.1-01, Occupancy Types
• Fannie Mae Selling Guide: B4-1.2-01, Appraisal Report Forms and Exhibits (Form 1007)
• CFPB: What is a Loan Estimate?
• CFPB: Loan Estimate explainer
• CFPB: What is a prepayment penalty?