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DSCR Loans have gained popularity quickly, and with that have come a few misunderstandings in the investor community. Let’s clear up a few myths:
Not exactly. It’s true that DSCR Loans don’t require income verification, which superficially sounds like the pre-2008 so-called “liar loans.” But today’s DSCR Loans are structured much more conservatively. They require substantial down payments (20-25% or more), solid borrower credit, and sophisticated cash flow analysis, none of which was necessarily true for the worst loans of the pre-2008 era. In short, DSCR Loans are a form of well-underwritten lending with real underwriting logic, not the wild speculation of the subprime era. In fact, many DSCR borrowers have excellent credit and track records – these loans aren’t just being given out to anyone. As of 2025, performance data on DSCR Loans (default rates, etc.) has been relatively strong, indicating these loans are here to stay as a durable loan product in the market.
This is a common misconception. DSCR Loans are not the same as hard money loans. Hard money typically refers to short-term loans (6–18 months) used for flips or rapid acquisitions. These loans come with very high interest rates (often 10–12% or more), significant points, and minimal underwriting beyond the property’s collateral value.
DSCR Loans, by contrast, are long-term mortgages, typically with 30-year fixed terms with a fixed interest rate, designed for stabilized rental properties. While their interest rates are higher than conventional loans, they’re usually in the single digits and far below typical hard money rates. DSCR Loans also involve a more extensive and formal underwriting, including full appraisals, credit checks, and eligibility criteria based on property cash flow.
The confusion often arises because many private lenders offer both loan types, but they are entirely different products. The main similarities are that both are typically used for investment properties and generally do not require personal income documentation. But in purpose, pricing, and structure, they serve very different functions.
Think of DSCR Loans as the middle ground between conventional and hard money, albeit falling much closer in similarity to conventional loans in rates and terms than asset-based loans. DSCR Loans are long-term, easier to qualify for than traditional mortgages, but with more structure and lower cost than hard money loans. In fact, many investors use both types of loans together, starting with hard money to acquire and rehab a property quickly, then refinancing into a DSCR Loan once the asset is rent-ready (i.e. the “BRRRR Method”). They can be complementary tools, not interchangeable ones.
Q: Can I use a DSCR Loan for a fixer-upper or property that needs rehab?A: No — DSCR Loans require the property to be rent-ready and in livable condition at closing. If major repairs are needed, you’ll likely need to use a hard money loan first, then either refinance into a DSCR Loan once the rehab is complete or sell the property after the improvements.
This is false. While DSCR lending is more flexible, it’s not a giveaway. You will need an adequate credit score (typically 620+ minimum, but often 640, 660 or even 680 with some lenders), you will need the down payment, closing cash and liquid asset “reserves” verified, and you will need an appraisal to support the property value and market rent. DSCR Lenders also often verify that you have insurance lined up, and they’ll scrutinize the title report for any issues. They might not ask for your tax returns, but they absolutely do their homework on the collateral and your creditworthiness. So, no, DSCR Loans are not “fog the mirror and you’re approved.” They are easier, but they still involve a proper underwriting process.
This is far from being true across the board. While 1.25x DSCR ratio is a common threshold for many lenders (and a good rule of thumb for a healthy deal), it is typically a threshold to get the best possible terms, not to qualify. DSCR Lenders typically group loans in different “buckets” or ranges to help determine your interest rate and loan terms. For example, loans with DSCRs between 1.00x and 1.14x might be treated the same, and then loans with 1.15x to 1.24x DSCRs (the next “bucket”) will get slightly better terms and so on. Most lenders use DSCR lenders as 1.25x as a minimum to get the best possible terms from the portion of the pricing that comes from DSCR ratio analysis. Therefore a 1.25x DSCR will get you ideal terms on your loan, but it’s generally going to be treated the same as higher ratios and is not a minimum requirement for qualification.
This misconception likely stems from mixing up DSCR Loans and commercial real estate loans that both use the DSCR ratio in underwriting and qualification, but very differently: both in formula and calculation, and minimums. CRE lenders typically have a 1.25x DSCR minimum, but DSCR Lenders do not, and with their trademark flexibility, will often offer loans with DSCR ratios near or even under 1.00x!
This is a misconception; you can get a DSCR Loan on a vacant property. Lenders will typically use the appraiser’s estimate of market rent to qualify the loan in these cases. In fact, many residential real estate purchases for rental properties are of vacant homes (or soon-to-be vacant after closing). As long as the market rent supports the loan, it’s fine (and common).
It’s important to note that vacant properties are perfectly fine for acquisition transactions, and are actually the norm. In cases where the property is mismanaged by the seller, with a lease in place that has significantly below-market rents, a vacant property is actually viewed by the DSCR lender more favorably. Where borrowers on DSCR Loans run into trouble with qualifying vacant properties is when the transaction is a refinance. This is because it begs the question: “why is the property vacant?” If the property is vacant because it’s not leased due to mismanagement, then that’s a red flag indicating that the borrower is not a good credit risk or that the market rent is inaccurate (or otherwise, it would be rented at market rate!). Other explanations could be that the property is still undergoing renovations or that there might be occupancy fraud occurring (borrower plans to actually live in the property). Regardless, all of these situations are nearly impossible for a DSCR Lender to justify, and typically the lender will require the property have a lease at least signed and in place before closing the refinance loan. Only in very rare cases (exceptions) can a borrower get a refinance DSCR Loan on a vacant property, usually in cases of large portfolios of newly constructed rentals or if the vacancy is just one unit of a multi-unit property.
Not true. DSCR Loans are available to first-time real estate investors. There is no requirement that you own a minimum number of properties first (though a few lenders might have a guideline like “first-time investors max 70.0% LTV,” many others don’t). The typical profile of DSCR borrowers often skews to people who already have a few rentals and are expanding, but if you’re buying your very first rental and you have good credit and a down payment, you can still use a DSCR Loan to finance it. In fact, some new investors choose DSCR Loans out of the gate if they, for example, just left a W-2 job to start a business, they might not qualify conventionally, so they use DSCR Loans for their first deal. Of course, if you’re brand new, do your homework – lenders won’t teach you how to be a landlord, they expect you to at least know what you’re getting into. But from an eligibility standpoint, real estate investing newbies are not excluded.
This is a misconception. While property rental income is the primary qualifier, your personal credit score does matter significantly for DSCR Loans. Nearly all programs have minimum credit requirements, and they tier rates by credit score. For example, a 740+ FICO might get you a notably better interest rate than a 660 FICO on the same DSCR Loan. The property’s cash flow doesn’t overcome a history of credit mismanagement. If you have recent late payments, collections, or a bankruptcy, those could derail your DSCR application just as they would a conventional mortgage loan. Ideally, work on a clean credit profile (no late mortgage payments, no recent major derogatories) before applying, to get the best terms. Some investors mistakenly think “oh it’s asset-based, I can have a 600 score.” While one might find a lender at 600, expect to bring a much bigger down payment and pay a much higher rate, if you find one at all. A good rule of thumb is to aim for a 660 or higher credit score to get the best DSCR Loan experience.
Q) Is a DSCR Loan the same as a no-doc or stated-income loan?
A) No. While DSCR Loans don’t require personal income documents like W-2s, tax returns, or pay stubs, which is similar to stated-income or “no-doc” loans, they’re not documentation-free. Lenders still require documents like appraisals, rent schedules, leases, and often factor in credit score, reserves, and investor experience. DSCR Loans skip income verification, but still involve real underwriting based on the property and the borrower — not just a stated number.
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