A DSCR loan is a mortgage for rental property that is approved on the property’s income instead of the borrower’s. If the rent covers the payment, the deal can qualify, whatever your tax returns say. This guide explains how the ratio works and what we look for on a Massachusetts rental.
What DSCR means
DSCR stands for debt service coverage ratio. It is the monthly rent divided by the full monthly payment: principal, interest, property taxes, insurance and any association dues.
| Monthly rent | Monthly payment | DSCR | Result |
|---|---|---|---|
| $4,000 | $3,000 | 1.33 | Rent exceeds the payment by 33% |
| $3,000 | $3,000 | 1.00 | The property breaks even |
A ratio of 1.0 or better is preferred. Strong borrowers can qualify below 1.0 at lower leverage.
What a DSCR loan can finance
- Long-term rentals
- Short-term rentals such as Airbnb and VRBO, where local rules allow them
- Warrantable and non-warrantable condos
- Condotels
- Rental property owned by foreign nationals
What gets underwritten
- Property type. Different property types qualify for different loan-to-value limits.
- Rental income. A signed lease for an existing rental, market rent from the appraisal on a purchase, or 12 months of income history or AirDNA projections for a short-term rental.
- Credit. DSCR loans are available down to a 600 credit score at up to 70% loan-to-value. Higher scores qualify for up to 85% of the purchase price.
What is not underwritten: your job, your employer or your personal debt-to-income ratio.
DSCR loans on Massachusetts property
Two- and three-family homes are the typical rental building across Massachusetts, and the rent from every unit counts toward the ratio. Two local points are worth knowing before you run your numbers. Property taxes and insurance vary widely from town to town and both sit inside the payment. And short-term rental rules are local: Boston limits short-term rentals to owner-occupied homes, so a Boston rental is normally underwritten on long-term rent.
How to apply
- Work with a lender that focuses on investment property. A broker whose main business is home buyers is not a specialist in rental underwriting.
- Gather your documents: two months of bank statements, a driver’s license, and if you use an LLC, the EIN letter, articles of organization and signed operating agreement.
- Send us the address, price and expected rent. We will calculate the DSCR and tell you what leverage the property supports.
Read more about DSCR rental loans or send us a property to review.