A DSCR mortgage loan (Debt Service Coverage Ratio loan) is one of the most popular financing options for real estate investors in Texas because it focuses on the property’s ability to pay for itself, rather than your personal income. If you’re looking to buy or refinance a rental property, including cash-out options, a DSCR loan can be a simpler path to approval, especially for self-employed borrowers, investors with multiple properties, or anyone who doesn’t want to provide a mountain of tax documents. DSCR also allows for LLC loans.
Below is a full breakdown of what you need to know about DSCR loans through Texas Premier Mortgage #1 DSCR Lender in Texas
What is a DSCR mortgage loan?
DSCR measures whether the rental income from the property is enough to cover the property’s monthly housing payment.
- Debt service = the mortgage payment and sometimes other housing costs
- Coverage ratio = how much rent covers the monthly payment
A basic DSCR formula looks like this:
DSCR = Monthly rental income ÷ Monthly housing payment
Example:
- Rent = $2,200/month
- Monthly housing payment = $2,000/month
- DSCR = 2,200 ÷ 2,000 = 1.10
A DSCR of 1.00 means the rent equals the payment.
Above 1.00 means rent covers the payment with room to spare.
Below 1.00 means rent does not fully cover the payment.
Different lenders set different minimum DSCR requirements, and those requirements can affect your rate, down payment, and approval strength.
Why DSCR loans are so popular in Texas
Texas is a huge investor market—rental demand, population growth, and job movement have made single-family rentals and small multifamily properties attractive in many areas. DSCR loans are popular because they can:
- Avoid heavy income documentation (no tax returns required)
- Qualify you based on the property’s cash flow
- Work well for investors building a portfolio (multiple properties)
- Move faster than many traditional “full-doc” investor loans
If your personal income is complex (business write-offs, fluctuating commissions, multiple streams), DSCR is often a cleaner approach.
Who is a DSCR loan best for?
A DSCR loan is typically a great fit if you are:
- Buying a rental property (long-term rental)
- Buying a property to operate as a short-term rental (depending on program rules)
- Refinancing a rental property (rate/term or cash-out, depending on guidelines)
- Self-employed and don’t want your write-offs to hurt your qualifying income
- A real estate investor scaling beyond what conventional loans easily allow
It’s less ideal if you’re buying a primary residence (DSCR is usually for investment properties only) or if the rent won’t support the payment and the lender requires a higher DSCR.
What types of properties can qualify
Most DSCR programs are built for typical investment property types, such as:
- Single-family homes
- 2–4 unit properties
- Condos (program-dependent)
- Townhomes
How rental income is calculated (and why it matters)
For most DSCR loans, rental income is supported by one of these:
- Appraisal with a market rent analysis ( called a rent schedule)
- Existing lease agreement (if already leased)
- For short-term rentals, some programs may allow alternative documentation (varies widely)
The key point: the lender will use a recognized method to estimate rent. If the rent supports the payment strongly, your terms generally improve.
What counts in the monthly “housing payment”
This is a big deal because your DSCR depends on what the lender includes. Often it’s based on:
- Principal + Interest
- Property taxes
- Insurance
- HOA dues
Typical DSCR thresholds (what lenders like to see)
Common DSCR ranges you’ll hear:
- 1.00+: rent covers the payment (often a key target)
- 1.10–1.25: stronger approvals and better pricing
- Below 1.00: still possible sometimes, but terms may be tighter (bigger down payment, higher reserves, or higher rate)
Down payment and equity expectations
DSCR loans are investment loans, so they usually require more skin in the game than a primary home loan.
You’ll commonly see:
- Purchases: often 20%–25% down (sometimes more depending on DSCR, credit, and property type)
- Refinances: based on maximum loan-to-value (LTV), which varies by program
Higher down payment (or more equity) can:
- Improve pricing
- Improve approval odds
- Offset a weaker DSCR
Credit score and borrower requirements
DSCR programs usually have credit score minimums, and stronger credit tends to help pricing. Lenders may also look at:
- Major credit events and how recent they are
- Real estate experience (sometimes)
- Cash reserves (more on this next)
The DSCR loan is “property income focused,” but it’s still a mortgage—credit and capacity still matter.
Cash reserves
Many DSCR lenders require reserves, meaning money you have available after closing on a purchase or refinance loan. This could be:
- A certain number of months of mortgage payments in the bank
- Liquid assets or sometimes retirement accounts
Reserves can increase based on:
- Number of financed properties
- Property type
- Loan size
Texas Premier Mortgage will match you with the best program and reserve requirements.
DSCR purchase vs DSCR refinance (including cash-out)
DSCR works for both buying and refinancing.
DSCR Purchase
Good for acquiring new rental properties without traditional income qualification.
DSCR Rate-and-Term Refinance
Used to lower rate, change terms, or remove someone from title (scenario dependent).
DSCR Cash-Out Refinance
This is popular for investors pulling equity to:
- Buy another property
- Renovate
- Pay off higher-interest debt tied to the property
- Build reserves
What documents you’ll typically need
Compared to traditional loans, DSCR is often lighter on income documentation, but you still provide standard mortgage paperwork. Common items include:
- ID and basic borrower info
- Property contract (for purchase)
- Insurance quote
- Appraisal (ordered through the lender)
- Lease agreement (if applicable)
- Bank statements / asset proof for down payment and reserves
Many DSCR programs don’t require W-2s or tax returns in the traditional way, but requirements can vary.
Pros and cons of DSCR loans
Pros
- Qualify based on property cash flow
- Often less income documentation
- Great for self-employed and investors with write-offs
- Helps scale a portfolio more smoothly than conventional rules sometimes allow
Cons
- Rates can be higher than primary-home loans
- Down payments are typically larger
- Strong DSCR, credit, and reserves matter for best terms
- Not every property or rent scenario fits lender guidelines
Having the right information is important; some common mistakes on an application:
- Taxes/insurance are higher than expected, lowering DSCR
- Rent estimate comes in lower than expected on appraisal
- HOA dues push the payment higher than planned
- Short-term rental assumptions don’t match the lender’s allowed rent method
- Reserves requirement is higher because you own multiple properties not previously disclosed
Why go through Texas Premier Mortgage - Best Texas Local Lender
A broker can compare multiple DSCR lenders instead of forcing your deal into one lender’s box. That matters because DSCR guidelines vary a lot—minimum DSCR, max LTV, credit tiers, reserve rules, property types, and whether short-term rentals are treated favorably.
Texas Premier Mortgage is a community lender helping clients and investors across the state of Texas:
- Ability to shop multiple DSCR programs quickly
- Clear explanations of DSCR math and rent documentation
- Strong communication through appraisal and underwriting
- Structuring the loan to match your investment plan (cash flow vs leverage)
DSCR is the newest and most advanced Investor product in the country!
A DSCR mortgage loan is designed for investors who want financing based on rental performance, not personal income. If the property cash flows (or nearly cash flows) and you’ve got solid credit and reserves, DSCR can be one of the fastest ways to expand a rental portfolio in Texas. For more information about DSCR loans, their benefits and loan options and how it may apply to you, please contact us direct or submit the "Quick Quote" form on this page
