How DSCR Loans Work for Real Estate Investors

Looking to grow your U.S. rental portfolio, but don’t have U.S. credit or U.S. income? DSCR loans are the ultimate cheat code for international investors.

DSCR (debt-service-coverage-ratio) loans qualify you based on the property's income potential, rather than your finances. That makes them a powerful financing tool for real estate investors, especially foreign nationals, who often don’t fit the standard mold.

In this guide, we’ll explain exactly how DSCR loans work, how lenders calculate your ratio, and what you’ll need to qualify. You’ll also see how Waltz simplifies the process for foreign nationals like you.

Key takeaways

• DSCR loans evaluate a property’s income instead of the borrower’s income, making them ideal for non-traditional buyers.
  
  
• The DSCR typically must be 1 or higher to qualify, and a ratio of 1.25 or higher may lead to better loan terms.
  
  
• Requirements for DSCR loans often include: an LLC, proof of funds, estimated income potential, and expenses.

What is a DSCR loan?

DSCR stands for debt-service-coverage-ratio, and it’s the core metric lenders use to assess whether a rental property generates enough income to cover its debt. A DSCR loan is a type of real estate financing that evaluates the property's income to determine eligibility–, not the borrower's. 

Unlike conventional loans that many foreigners don’t qualify for due to strict requirements, DSCR loans are designed to be more flexible, making it easier for foreign investors to qualify based on rental income.

Learn more: The Ultimate Guide to DSCR Loans for Foreign Nationals

How DSCR is calculated

Your DSCR indicates whether your rental income is sufficient to cover your debt payments. Most lenders require a DSCR of 1 or higher, which means the property generates enough income to cover its loan payments in full. A ratio of 1.2 or 1.25 is even better, and can qualify you for stronger loan terms. Here’s the formula Waltz uses:

Operating income is essentially your rental income. Total debt service is your monthly loan payment including principal, interest, property taxes, insurance, and homeowner’s association (HOA) fees if applicable.

How DSCR could impact your loan terms

In general, the stronger your property’s cash flow (i.e., the higher the DSCR), the better your terms, since lenders like Waltz view it as a lower-risk loan. A higher DSCR indicates strong property performance. As the ratio approaches 1, risk increases, since it suggests the property is just breaking even and may not generate positive cash flow if unexpected expenses arise.At Waltz, we help calculate your DSCR upfront, so you’ll know where you stand from day one.

Read more: How to Read a Term Sheet for DSCR Loans

What lenders require to approve a DSCR loan

Since DSCR loans focus on a property's ability to generate rental income, most lender requirements are centered around cash flow and investment potential. While specific criteria may vary by lender, here are some of the most common requirements you can expect from Waltz:

• Business entity: DSCR loans must be obtained through a U.S. business entity, such as an LLC. Waltz removes the complication of setting up an LLC on your own with our Investor Kit.
  
  
• Rental income: Lenders will look at current rental income or expected rent if the property is vacant. Market rent estimates are usually based on comparable local rental properties.
  
  
• Down payment: You’ll typically need to come with a down payment of about 30% of the property’s value. This is based on the loan-to-value (LTV) ratio, which compares the loan amount to the appraised value of the property. Waltz will want to see the proof of the source of funds, so make sure you have a paper trail!
  
  
• Appraisal: Lenders require an appraisal to verify the property's market value. If the property is in poor condition or doesn’t appraise at the expected value, you may need to come with a higher down payment or complete repairs.
  
  
• Property type: Only one to four unit income-producing investment properties are eligible for DSCR loans with Waltz. This includes single-family homes, condos, townhomes, and 2–4 unit multi-family buildings.
  
  
• Minimum loan amount: Most DSCR lenders have a minimum loan amount, usually starting at $100,000. This is based on how much you’re borrowing—not the property’s purchase price.

These requirements are designed to ensure the property can reliably generate income and support the loan. 

Learn more: Here's What You Need to Know Before Applying for a DSCR loan

Financing made simple: explore DSCR loan options with Waltz

Waltz was built specifically for real estate investors who don’t fit the traditional borrower profile. We handle the process for you, so you can close with confidence from anywhere in the world. Here’s what makes Waltz different:

• End-to-end support, including entity setup and U.S. banking through Regent Bank² with addition of our Investor Kit
• No U.S. credit history or U.S. income documents required
• Close remotely through a fully digital process

Ready to qualify based on your property's income, not your own? Waltz makes it possible.

Start your application and close in as little as 30 days!