In today’s fast-paced, highly competitive real estate investment market, investors are constantly looking for ways to outpace the competition. In 2025, debt service coverage ratio (DSCR) financing is often the leg-up long-term investors have been waiting for. Through DSCR loans, investors can leverage a property’s potential to gain leverage and approval throughout the loan process. But how do DSCR loans work?
In this article, we’ll explain how DSCR loans work and the loan process from start to finish. Let’s dive in.
How Does a DSCR Loan Work?
With rising interest rates, stricter requirements, and long loan processes, traditional mortgages through conventional lenders (banks and credit unions) lack the speed, accessibility, and benefits investors need to succeed in today’s markets. That is why many have turned to private lenders, who operate outside the bureaucracy of governmental and institutional oversight. With more freedom, lenders like FACo can tailor financing options to fit the specific needs of their investor clients.
For rental investors, DSCR financing programs are the golden egg for many long-term investments. DSCR loans are unique in that they do not focus solely on an investor’s personal income or W-2s. With most real estate investors operating businesses under LLCs with “self-employed” designations, a lack of documented personal income and tax returns often disqualifies even the most qualified applicants for conventional mortgage options.
DSCR investment loans, on the other hand, take an asset-based approach to loan approval. A DSCR loan calculator and formula are used to consider a property’s rental income (in-place or potential) and an investment’s principal, interest, taxes, property insurance, and association dues or “PITIA.”
DSCR Formula = Rental Income / Principle + Interest + Taxes + Insurance + Association Dues
The DSCR formula determines the DSCR ratio, which identifies the profitability of a property (rental income) based on its overall expenses (PITIA). The higher the DSCR ratio, the more attractive the property becomes to investors and lenders. For rental projects, lenders typically look for properties with at least a 1.05x DSCR ratio.
DSCR Loan Requirements
By taking an asset-based approach to the approval process, private lenders have the flexibility and freedom to say “yes!” to borrowers when others can’t. However, while private lenders’ DSCR programs minimize the importance of personal income and W-2s, there’s still risk involved in underwriting and funding these loans. Which is why there are some individual-based requirements, including:
- 660 FICO score or above
- 15-25% DSCR loan down payment
- 1.05x DSCR ratio minimum
With a reasonable FICO score, down payment, and the ability to properly analyze a property’s potential and find hidden gems, rental investors can leverage DSCR financing to unlock more opportunities and faster business growth.
The DSCR Investment Loan Process
Now that you understand the “why,” it’s time to break down the “how.” Below is FACo’s step-by-step DSCR loan process to help borrowers understand what they will need and how to get started:
- Soft Credit Pull: The process begins with a soft credit pull. This quick check does not affect applicants’ credit scores and is used to confirm basic eligibility before proceeding.
- Submit Track Record: The borrower then shares any rental or investing experience they may have. While FACo offers DSCR financing to investors of any experience level, a track record can help our team of experts better understand goals and can lead to better DSCR loan terms.
- Appraisal: A third-party appraiser is then hired to verify the property’s current value and rental income potential. And, unlike other lenders, FACo reimburses the cost of the appraisal to their borrowers at closing–helping to reduce out-of-pocket expenses.
- Purchase Contract: Borrowers will need a copy of the purchase agreement for the property, which outlines the terms of the deal.
- Lease Agreement: If the property is currently occupied, borrowers must submit any tenant’s current lease agreements. FACo can use these details to calculate and confirm DSCR projections.
- Entity Documents: If purchasing a property under an LLC or other business entity, borrowers must provide entity formation documents to verify ownership and ensure proper structuring.
- Title & Insurance: FACo will then confirm ownership with the title company and arrange for title insurance. Additionally, FACo’s team of rental property experts will review any current property insurance policies the borrower possesses–ensuring adequate coverage is in place.
- Closing: Once all conditions are satisfied, FACo schedules the closing and prepares the funds to be wired at closing.
This straightforward, investor-friendly DSCR investment loan application process is designed to help investors get the money they need to grow and succeed in today’s long-term real estate investment markets.
Unlike traditional loans that require W-2s, tax returns, and extensive income verification, FACo’s DSCR financing program lets the property speak for itself. If an investment property has strong rental income potential, FACo will work with investors to get them qualified and funded. The flexibility, accessibility, and investor-friendly approach of FACo and its DSCR loan programs are what make them advantageous lending options for investors with non-traditional income, who are self-employed, or are looking to scale quickly.
FACo: Your DSCR Financing Partner
When it comes to cost savings and accessibility, finding a reliable and flexible capital partner can go a long way. FACo has been providing investors of all sizes with the most reliable and flexible long-term DSCR financing options for over a decade.
Our Single Rental & Rental Portfolio loan options provide investors with:
- Flexible terms and approval processes with no W2s, paystubs, or tax returns required
- $2MM maximum loan amount
- SFR, warrantable condos, townhomes, PUD, and 2-4 units eligibility
Rather than wondering, “How do DSCR loans work?” It’s time to start thinking, “How can DSCR loans work for me?” Whether you are just starting or looking to scale your rental investment portfolio, FACo can find the best DSCR financing option that aligns with your business goals. CLICK HERE to schedule a FREE consultation today.
