A DSCR loan is a real estate investment loan that qualifies borrowers of loans based on a property’s rental income rather than personal income or W-2s. DSCR stands for Debt Service Coverage Ratio—a measure of whether a property earns enough to cover its own loan payments. If the math works on the property, this type of loan can work for you to buy an investment property.
For real estate investors who are self-employed, own multiple properties, or cannot document income as a traditional bank requires, this financing is a vital tool.
At High West Lending, we use DSCR loans to fund rental properties, short-term rentals, and income-producing investments across the Mountain West and beyond. Here is what you need to understand before you apply.
How the DSCR Formula Works
The Debt Service Coverage Ratio is calculated with a straightforward formula:
DSCR = Gross Rental Income ÷ Total Debt Obligations (PITIA)
Total debt obligations include your mortgage principal and interest, property taxes, insurance, and HOA fees.
- DSCR above 1.0: The property earns more than it costs to carry.
- DSCR of exactly 1.0: The property breaks even.
- DSCR below 1.0: The property does not generate enough income to cover debt payments on its own.
Example: A rental property in Boise generates $2,800 per month in rent. Monthly PITIA is $2,200. DSCR = $2,800 ÷ $2,200 = 1.27. This is a healthy ratio that leaves a margin and the loan would be approved all things equal.
Use our calculator to estimate your own deal’s potential.
What DSCR Lenders Evaluate
Traditional banks underwrite the borrower; DSCR lenders underwrite the property deal numbers. The primary focus includes:
- Property Income Potential: Lenders use current leases and/or market rent analysis. For short-term rentals (Airbnb/VRBO), lenders typically use 70% to a max of 75% of projected gross income to account for vacancy.
- Appraised Value: Most DSCR lenders lend up to 70–75% LTV. Down payments typically range from 25–30%.
- The Exit Strategy: A clear plan for when the loan comes due (refinance, sell, or hold) is critical for funding.
- Property Condition & Market: Location and rental demand are weighed alongside the numerical ratio.
DSCR vs. Traditional Rental Financing
| Feature | DSCR Loan | Conventional Investment Loan |
| Qualification | Property cash flow | Borrower income (W-2) |
| Close Timeline | 4 weeks | 45–60+ days |
| Documentation | Mostly Property based documentation | Mostly borrower based, e.g. Full tax returns/paystubs |
| Portfolio Limits | None | Typically capped at 10 |
| Entity Borrowing | Most frequently LLC / Entity, rarely in personal name | Most frequently personal name only |
Short-Term Rentals (STR)
DSCR loans are a great tool for financing short-term rental properties in markets like Park City, Bozeman, and Jackson Hole. Lenders generally apply a 50% gross income factor to account for the seasonality, high fees, and higher costs of more wear and tear, that is associated with Airbnb and VRBO properties.
Active Lending Markets
High West Lending provides DSCR financing across:
- Utah: Salt Lake City, Lehi, Provo, Nephi, Ogden, Layton, Logan, St. George, Cedar City, Logan, and resort areas like Eden and Park City.
- Colorado: Denver, Colorado Springs, Fort Collins, Boulder, Greeley, Grand Junction, Pueblo, Glenwood Springs, Durango, and Resort areas like Steamboat Springs, Vail, Aspen, Winter Park, Telluride, Pagosa Springs.
- Idaho: Boise, Idaho Falls, Coeur d’Alene, Post Falls, Hayden, Pocatello, Twin Falls, and resort areas like Sandpoint, Sun Valley, Driggs, Victor.
- Montana: Billings, Bozeman, Belgrade, Missoula, Kalispell, Great Falls, Butte, Helena, and resort areas like Big Sky, Whitefish, Red Lodge, and Philipsburg.
- Wyoming: Cheyenne, Laramie, Rock Springs, Evanston, Green River, Cody, Casper, Sheridan and resort areas like Jackson Hole, Alpine, Star Valley.
- Other States on a case by case basis: we look at other states depending on the loan scenario including Arizona, Oregon, Washington, and Texas.
DSCR FAQS
1. What is a good DSCR ratio for a rental property loan?
Most lenders prefer a DSCR of 1.20 or higher, meaning the property generates 20% more income than the debt obligations. However, at High West Lending, we can often facilitate loans with a 1.0 ratio (break-even) or slightly lower, depending on the borrower’s credit score and down payment.
2. Can I get a DSCR loan with no income verification?
Yes. DSCR loans are “no-doc” or “low-doc” regarding personal income. We do not require W-2s, pay stubs, or tax returns. The underwriting focuses entirely on the property’s ability to generate rental income and your personal credit history.
3. Do DSCR loans have higher interest rates than conventional loans?
Generally, DSCR loan rates are 1% to 2% higher than conventional investment property rates. This premium accounts for the increased risk the lender takes by not verifying personal income and the expedited closing timeline (often under 30 days).
4. Is there a limit to how many DSCR loans I can have?
Unlike conventional Fannie Mae or Freddie Mac loans, which typically cap a borrower at 10 properties, there is virtually no limit to the number of DSCR loans you can hold. This makes them the primary tool for investors looking to scale a large portfolio.
5. Can I use a DSCR loan for a short-term rental or Airbnb?
Absolutely. DSCR loans are ideal for short-term rentals (STRs). We analyze the property’s income potential using specialized data (like AirDNA) or traditional market rent averages, applying a vacancy factor to ensure the debt service is sustainable.
Ready to Grow Your Portfolio?
If you have real estate in the Mountain West that you want to finance based on its value rather than based on your tax returns, we are here to help! If your property needs work before it can qualify for a DSCR loan, consider one of our bridge loans first.
- Call: 435-565-1768
- Email: corey@highwestlending.com
- Apply Now: High West Lending Quick Application
About the Author:
Corey Dutton is the Founder of High West Lending and a seasoned private money expert with over 15 years of experience in real estate finance. Since 2008, Corey has successfully deployed millions in capital to Mountain West investors. She is an active member of the American Association of Private Lenders (AAPL) and is a recognized voice in non-QM lending. Her expertise helps investors navigate complex market cycles in Utah, Colorado, and beyond.