One of the most asked questions by rookie investors is, “How do I grow my portfolio if my income is low or unstable?”

Obviously, if your real estate investing is a side gig and you have substantial regular income, this isn’t for you. You already know that you have the option to go down the traditional mortgage route to buy your next investment property.

But if you are self-employed and your income is variable, you likely won’t qualify for a traditional mortgage loan. Assuming that you also, at this point, don’t have access to equity in your own home to take out a loan, your options are beginning to look very limited.

But that’s because you likely have never explored the DSCR loan route. Its eligibility criteria are fundamentally different from ordinary mortgage products. All you need is one investment property that is generating rental income. If your property can pay for itself, you may qualify for a loan—even if your personal finances say otherwise.

Here’s what every serious investor should know about DSCR financing.

What Is a DSCR Loan?

A DSCR (debt service coverage ratio) loan is a type of mortgage specifically angled at real estate investors because it allows the applicant to borrow against a rental property’s cash flow as opposed to the borrower’s income.

This can be especially useful for investors whose income documentation may not meet traditional mortgage requirements, such as self-employed individuals or those with variable income.

Rather than relying solely on traditional income documentation, the lender will zoom in on your rental property’s ability to meet its debt obligations. How? By comparing the property’s income to its debt burden.

Basically, they will want to see if the total net operating income per annum exceeds the total loan repayments. This is the basis for the simple formula lenders will use as a factor in deciding whether to approve the DSCR loan: annual net income, divided by annual debt service payments (principal and interest payments, property taxes, and homeownership association fees). This is the DSCR ratio.

The Importance of a Good DSCR Ratio

A good ratio is crucial for getting approved for a DSCR loan.

What is considered a good debt service coverage ratio? Most lenders prefer a DSCR of 1.25 or higher, as it indicates stronger cash flow. However, some lenders—including Figure—may accept DSCRs as low as 1.0, depending on other factors like credit score and property type.

Let’s imagine you have a property with an annual debt obligation of $100,000, an annual rental income of $150,000, and annual expenses of $40,000. That leaves you with a net operating income (NOI) of $110,000, which, when divided by the annual debt obligation, gives you a ratio of 1.1—might be too low to qualify for a loan with most lenders.

Once you understand your DSCR and are considering a loan, remember that the loan is taken out against the property’s rental income. If, for whatever reason, you experience a dip in rental income, you will need those cash reserves to cover the payments, while still meeting all your existing debt obligations.

It is essential to do your calculations right when figuring out if you’ll qualify for a DSCR loan: Always subtract all relevant expenses, including repairs and maintenance/management fees, from your NOI before you get to working out the ratio.

If you’re getting a low ratio, you may want to look into ways of increasing the rental income or reducing your expenses before applying for a DSCR loan.

Common DSCR Loan Misconceptions

There is one piece of fundamentally good news for investors who have a property or properties generating a steady rental income. Chances are you can utilize this underused loan strategy to expand your portfolio. And, for investors whose personal finance history works against them on mortgage applications, DSCR loans can be a valuable solution.

However, there are a few details to be mindful of to maximize your chances of success:

Less paperwork doesn’t mean no paperwork.

It’s true you likely won’t need to fetch tax returns and pay stubs. However, proof of rental income isn’t the only thing you’ll need. Lenders will want to know the current market value of the property, so you’ll need to get an appraisal done. To lessen this burden, consider lenders that use automated valuation models (AVM) and can do this digitally.

Give it time.

You will typically need at least 12 months of rental income to prove the property can be borrowed against.

Ensure you have a downpayment.

For purchase transactions, DSCR loans typically require a down payment of approximately 20% to 30%, depending on credit profile, property type, and underwriting criteria. Because these loans are designed for investment properties, minimum equity contributions are often higher than for owner-occupied traditional mortgages.

Borrowers should ensure they have sufficient capital to meet down payment and reserve requirements before applying. While some investors explore additional financing options, such as a home equity loan or line of credit (HELOC), to access liquidity, taking on additional debt can increase overall financial risk and reduce cash flow. Any such decision should be carefully evaluated in light of total debt obligations and long-term investment strategy.

Final Thoughts

A DSCR loan is an underused financing strategy every real estate investor should be aware of. If you have even a single property that’s generating healthy, stable rental income, you have a potential lifeline for your portfolio expansion.

DSCR loans are typically easy to apply for, can take less time to get approved than traditional loans, and take your personal income out of the equation—crucial for the self-employed investor. Do your calculations diligently, and you could get the financing you need to grow your portfolio at your pace.

This article is presented by Figure.

DSCR Loans: The Financing Strategy Many New Investors Overlook

FAQS About Lenders

What are good questions to ask your lender?

• Are you a direct lender or broker?
• What types of fix and flip loans do you offer?
• Will you communicate directly with the listing agent on the properties I make offers on?
• Where is the source of the money that you lend?
• Do you have access to down payment assistance programs that I can apply for?
• What information do you need from me in order to determine the best long-term rental loan for my situation?
• How long does it take you to provide a pre-approval letter?
• Do you offer any rate lock programs?
• Can you provide references from within the BiggerPockets community?
• Can you help me find other real estate professionals?

What are some best practices when choosing a lender?

• Compare rates and terms from multiple fix and flip loan lenders on the same day.
• Ensure that you ask your lender about what may change between your initial loan estimate and the final rate and terms.
• If your fix and flip loan is a private money loan, be very careful to understand exactly what may change while you are under contract on your property and what could cause your financing to fall through. The fewer surprises the better.
• Consider the reliability of your lender in addition to comparing rates. The lender with the lower interest rate may not always be the best lender for you.
• Carefully consider the pros and cons of fixed rate vs adjustable rate mortgages. Do not assume historical interest rates can be used to predict future interest rates.

How do lender fees work?

APR

APR stands for annual percentage rate. It represents the total yearly cost of borrowing money expressed as a percentage of the principal loan amount.

Interest Rate

This is considered the rate of interest on your mortgage note. It is less useful for comparing between lenders because the interest rate does not include fees that are a direct cost of borrowing money.

Points

Points are a one time fee charged by a lender expressed as a percentage of the loan amount. 1 point is 1% of the loan amount. Oftentimes, lenders will offer the opportunity to pay more upfront in the form of mortgage points in exchange for a lower interest rate over the life of your loan. Work with your licensed mortgage originator to carefully examine if this is worth doing based on your unique situation.

Fees

There may be other fees associated with underwriting a loan. It is important to ask your lender to disclose these fees up front.

Note: conventional lenders are required to provide a loan estimate, which discloses their fees. Private money lenders are not held to this standard and receive very little regulatory oversight. As such private money lenders are not recommended for inexperienced investors.

• A direct lender lends their own money. They have more influence over the underwriting process than a broker because they are lending their own money but they are not able to offer as many loan types or shop for the best rate.
  
  
• A broker does not lend their own money but instead they connect a borrower with a lender that offers the loan product that they are looking for. They can compare lenders to ensure they are providing the lowest rate and best terms. In exchange they charge a fee for their services.

Note: Some lenders are both direct lenders and brokers. They may lend their own funds for some loans and broker out loans that they cannot fund themselves.

What is the difference between a direct lender and a broker?

How much do I need for down payment?

Conventional loan Downpayment: 3%

Conventional loan (no PMI) Downpayment: 20%

FHA loan Downpayment: 3.5%

VA loan Downpayment: 0%

Private money rehab loan Downpayment: Varies

Private money rental loan Downpayment: Varies, but typically 25% or more

Note: Actual down payment requirements may vary depending on factors such as income and credit score.

What is the difference between a conventional lender, private money, hard money, and commercial lender?

• A private money lender is considered any lender that provides loans from a private individual or company that comes from a private source for investment property loans. Their loans are strictly for non-owner occupied investment properties and they are not limited by the underwriting requirements for conventional loans.
  
  
• Hard money lenders are a type of private money lender that underwrites their loans based on the hard asset itself rather than the borrower's qualifications like credit score or income.
  
  
• Conventional lenders are the most common type of lender. They offer conventional financing or government agency loans like FHA, and VA.
  
  
• All conventional lenders must have a national NMLS number and a state license in the states that they serve. You can search the NMLS license states on the NMLS consumer access website.
  
  
• A commercial lender specializes in lending on large commercial income producing properties like retail, office, storage and residential multi-family complexes.

© 2026 BiggerPockets. All rights reserved.

How it Works

Connect with a lender to explore refinance options today.