Investment Property Financing

DSCR Financing (Debt Service Coverage Ratio)

  • Qualifications based on property cash flow
  • No income or employment verification required
  • No limit on number of properties
  • Purchase – Cash Out Refinance – Rate and Term Refinance Options
  • Short Term Rental – Fix and Flip – Investment Properties

A Debt Service Coverage Ratio (DSCR) mortgage is a type of loan specifically tailored for investment properties and is primarily evaluated based on the property’s ability to generate income, rather than solely on the borrower’s personal income. This makes it particularly suitable for real estate investors and business owners who might have fluctuating personal incomes but own income-generating properties.

The DSCR is calculated by dividing the property’s annual net operating income (NOI) by its annual total debt service (the total amount of principal and interest payments due over the course of a year). The net operating income is the gross income from the property minus operating expenses. A DSCR of 1 means the income generated by the property is equal to its debt obligations, while a ratio above 1 indicates that the property generates sufficient income to cover its debt payments.

Lenders typically look for a DSCR above 1.25, as this provides a cushion in case the property’s income decreases. However, the required DSCR can vary based on the lender and the perceived risk of the loan. A higher DSCR may result in better loan terms, as it suggests a lower risk for the lender.

A DSCR mortgage may offer more flexibility than traditional mortgages. It often comes with fewer personal income verification requirements, making it a good option for investors who might not qualify for a conventional mortgage based on their personal income alone. However, these loans might come with higher interest rates and down payment requirements compared to traditional mortgages, reflecting the higher risk associated with basing the loan’s viability on property income.

Investors considering a DSCR mortgage should carefully assess the property’s income potential, taking into account factors such as market trends, location, occupancy rates, and the condition of the property. It’s also important to understand the terms and conditions of the mortgage, including the interest rate, repayment period, and any additional fees or penalties.

Using A DSCR Mortgage For Purchasing Of An AirBnB or Short Term Rental Property

A Debt Service Coverage Ratio (DSCR) mortgage can be an advantageous financing option for purchasing an Airbnb property, given its focus on the income-generating potential of the property rather than solely on the borrower’s personal income. Here’s how it can be used for this purpose:

Evaluating Income Potential:

  1. Projected Airbnb Income: Lenders will assess the potential income from the property as an Airbnb rental. This includes looking at factors like location, seasonal demand, occupancy rates, and average nightly rates.
  2. Historical Data: If the property has been used as an Airbnb rental previously, historical income data can be very valuable in establishing its earning potential.

Calculating DSCR:

  1. Net Operating Income (NOI): This will be calculated based on the expected or historical Airbnb income minus operating expenses. Operating expenses might include maintenance, management fees, utilities, insurance, and property taxes.
  2. Debt Service: The annual mortgage payments (principal and interest) are calculated.
  3. DSCR Calculation: NOI is divided by the annual debt service to determine the DSCR. A ratio of 1.25 or higher is generally preferred by lenders.

Loan Approval:

  1. Flexible Underwriting: Since the focus is on the property’s income, borrowers who might not qualify for traditional loans due to variable or lower personal income can still be eligible.
  2. Loan Terms: Terms may vary based on the calculated DSCR. A higher DSCR could lead to more favorable terms.

Advantages for Airbnb Investors:

  1. Investment Focused: Ideal for investors focusing on properties with strong rental income potential.
  2. Higher Borrowing Potential: Investors might qualify for a larger loan amount compared to personal income-based mortgages, depending on the property’s income.


  1. Market Research: Thorough research into the Airbnb market in the desired location is crucial to ensure realistic income projections.
  2. Regulatory Compliance: Awareness of local regulations regarding short-term rentals is necessary.
  3. Interest Rates and Down Payments: DSCR mortgages might come with higher interest rates and down payment requirements.
  4. Vacancy and Seasonality: Consider the impact of potential vacancy periods and seasonal fluctuations in income.


A DSCR mortgage can be a strategic tool for purchasing an Airbnb property, especially for investors who have a strong property but may not have the traditional income metrics required by conventional mortgages. It allows investors to leverage the income-producing potential of the property, making it a potentially lucrative financing option in the burgeoning short-term rental market.