Debt Service Coverage Ratio (DSCR) loans are revolutionizing how real estate investors finance rental properties—especially when traditional income documentation falls short. Unlike conventional mortgages, DSCR loans assess your ability to repay based on the property’s cash flow—not your personal income.
But DSCR loan requirements can vary widely by lender and by state. In this guide, we’ll break down the national standards and highlight important state-specific variations you need to know if you’re considering DSCR financing in 2025.
🧠 What Is a DSCR Loan?
A DSCR loan is a type of non-QM (non-qualified mortgage) designed specifically for real estate investors. Rather than requiring W-2s, tax returns, or pay stubs, these loans are based on the Debt Service Coverage Ratio—a measure of whether the property’s rental income can cover its debt payments.
DSCR Formula:
DSCR = Gross Monthly Rental Income / Monthly Mortgage Payment (PITIA)
Most lenders look for a DSCR of 1.0 or higher, meaning the property generates at least enough rent to cover the mortgage payment.
🟢 Visit our DSCR Loan hub to understand the benefits, risks, and ideal borrower profile.
📋 General DSCR Loan Requirements
While exact underwriting criteria vary, here are the standard requirements across most states:
- Minimum DSCR: 1.0–1.25 (some lenders accept as low as 0.75 or offer “no-ratio” loans)
- Credit Score: Typically 640+, though some allow lower with compensating factors
- Down Payment: 20–25% minimum (up to 30% for riskier profiles)
- Loan Amounts: Often capped at $2M–$3M per property
- Property Types: 1–4 unit residential rentals, condos, townhomes, short-term rentals (Airbnb)
- Documentation: Lease agreements or market rent (via appraisal), bank statements for reserves
- Ownership: Can be titled under LLC, trust, or personal name (LLC often preferred)
👉 Compare your options with our Loan Comparison Calculator.
🏡 DSCR Loan Requirements by State
Below is an overview of notable state-by-state DSCR considerations. While the federal guidelines remain consistent, these are lender trends and regulatory differences that may affect your eligibility or terms.
🔹 California
- Loan Sizes: Higher limits due to high home values (up to $5M possible)
- STR Rules: Local ordinances may limit DSCR use on short-term rentals (e.g., LA, SF)
- Popular Areas: SoCal coastal regions, Inland Empire, and Central Valley for STR and SFR rentals
🔹 Texas
- DSCR Minimums: Often 1.0, but some lenders require 1.2 for new investors
- Property Types: Strong demand for single-family and duplex rentals in Houston, DFW
- STR Lending: Welcomed in markets like Austin and San Antonio
🔹 Florida
- DSCR Programs: Many lenders operate here; favorable market for STR financing
- High Cash-Out Demand: Common for investors leveraging appreciation in Tampa and Miami
- LLC Borrowers: Widely accepted, especially for beach and vacation rentals
🔹 Georgia
- Credit Flexibility: Some lenders allow FICOs as low as 620 with strong DSCR
- Urban vs. Rural: Metro Atlanta sees more aggressive lending than smaller towns
🔹 Arizona
- Prepayment Penalties: Common—3–5 years of yield maintenance
- DSCR Threshold: 1.1+ often required in Phoenix metro due to higher price-to-rent ratios
🔹 New York
- Regulatory Nuance: Business-purpose exemption must be clearly documented
- Rental Restrictions: NYC rent-control limits may affect DSCR calculation
🔹 North Carolina
- Growth Market: Increasing lender activity in Charlotte, Raleigh
- DSCR Floors: Typically 1.15+ for properties not under lease yet
🔹 Illinois
- Lender Caution: Stricter underwriting in Cook County (Chicago)
- Loan Caps: Often $1.5M–$2M max due to market risk
🔹 Nevada
- STR Lending: Favorable in Las Vegas suburbs; lenders like AirDNA comps
- Credit Score Focus: Many programs require 660+ for tourist-market properties
🔹 Colorado
- High Entry Costs: 25–30% down often required in Denver and mountain resort areas
- DSCR Tolerance: Some accept as low as 0.85 DSCR with reserve strength
For detailed guidance, contact a mortgage advisor or lender that specializes in state-specific DSCR underwriting.
🔍 Common Variations by State
| Factor | Common Range | State-Level Considerations |
|---|---|---|
| DSCR Minimum | 0.75 – 1.25 | Higher in NY, CA, tourist-heavy zones |
| Minimum FICO | 640+ (some 600) | May vary lower in TX, FL |
| Max LTV | 70–80% | Often lower in high-risk zip codes |
| Eligible Property Types | 1–4 unit, condos, STRs | STRs restricted in some metros |
| Legal Entity Requirement | Personal or LLC allowed | LLC strongly encouraged in FL, TX |
💰 Can You Use DSCR Loans for Cash-Out?
Absolutely. DSCR loans are a popular tool for refinancing rental properties to extract equity. You can typically go up to 75% LTV, provided the rental income still supports the new loan.
👉 Learn more about cash-out refinancing with a DSCR loan.
🏘️ What Property Types Are Eligible?
Most lenders accept:
- Single-family homes
- Condos (even non-warrantable in many cases)
- Duplexes, triplexes, and fourplexes
- Short-term rentals (Airbnb/VRBO)
- Small multifamily (some up to 8 units)
- Mixed-use buildings (if residential is primary use)
✅ Tips to Qualify for a DSCR Loan in Any State
- Ensure Rent Covers PITIA: If your DSCR is <1.0, strengthen your reserves or buy down the rate.
- Form an LLC: Adds legal protection and unlocks more lender options.
- Keep Reserves Ready: 6–12 months of payments in savings is often required.
- Use Market Rent Comps: If the property is vacant, your appraisal’s rent schedule will be key.
- Consider an Interest-Only Term: Many DSCR loans offer 5–10 years IO to boost cash flow.
📌 Ready to Find the Best DSCR Loan in Your State?
Explore your options and compare rates with our DSCR Loan Overview or run the numbers with our Loan Comparison Calculator.
🧾 FAQs
Most lenders want at least 1.0, but some accept as low as 0.75 with stronger credit or larger down payment.
Yes. Many lenders will work with new investors, though they may require a higher DSCR or lower LTV.
Not necessarily. Lenders can use market rent from an appraisal’s rent schedule if the unit is vacant.
Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.