Investors
What Is a DSCR Loan?
A plain-English explanation of Debt Service Coverage Ratio financing for Tennessee real estate investors.
By Alex Robertson, Mortgage Loan Originator, NMLS #1595941
Updated 2026-09-24 · 5 min read
DSCR defined
DSCR stands for Debt Service Coverage Ratio. In the context of real estate investment financing, it is a metric that compares a property’s rental income to its debt obligations.
Certain DSCR mortgage programs evaluate this ratio to determine whether a property’s rental income is sufficient to cover its debt payments. Qualification may focus primarily on the property’s cash flow rather than the borrower’s personal income.
How DSCR is generally calculated
At a high level, DSCR is calculated by dividing the property’s annual rental income by its annual debt service, which includes principal, interest, taxes, insurance, and association dues where applicable.
A DSCR above 1.0 means the rental income exceeds the debt obligations. Specific minimum DSCR requirements vary by lender and program.
Who DSCR financing may be appropriate for
DSCR programs are generally designed for real estate investors purchasing or refinancing rental properties. This may include long-term rental investors and, depending on lender guidelines, short-term rental investors.
DSCR financing is not a substitute for personal income documentation in all scenarios. It is a specialized option for investment properties where rental income is the primary repayment source.
Purchase and refinance
DSCR programs may be available for both investment property purchases and refinances of existing investment properties. Eligibility depends on the property type, rental income, and lender guidelines.
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This article is provided for informational purposes only and does not constitute a commitment to lend or professional tax, legal, or financial advice. Programs, rates, terms and eligibility requirements are subject to change without notice and vary by lender and borrower circumstances. All loans are subject to credit, underwriting, property and other applicable approvals. This website is for informational purposes and does not constitute a commitment to lend.