If you want to buy a short-term rental but don’t have traditional W-2 income, a DSCR loan might be your best option. DSCR stands for Debt Service Coverage Ratio, and these loans qualify you based on the property’s projected rental income rather than your personal income.
What Is a DSCR Loan?
A DSCR loan measures whether a property’s income can cover its debt payments. Lenders calculate this by dividing the property’s gross rental income by the total monthly debt obligation (mortgage, taxes, insurance, HOA).
For example, if a property generates $3,000/month in rental income and the total monthly payment is $2,500, the DSCR is 1.2. Most lenders want a DSCR of 1.0 or higher, meaning the property at least breaks even.
Why STR Investors Love DSCR Loans
Traditional mortgages look at your personal debt-to-income ratio. If you’re self-employed, have multiple properties, or earn income through LLCs, qualifying can be a nightmare. DSCR loans skip all that.
Key advantages:
- No personal income verification required
- Close in an LLC (asset protection from day one)
- Scale faster since each property qualifies independently
- Most close in 21-30 days
What to Watch Out For
DSCR loans typically come with higher interest rates (usually 1-2% above conventional) and require 20-25% down. Some lenders also charge prepayment penalties, so read the fine print.
The biggest variable is how the lender calculates rental income. Some use actual STR revenue from platforms like Airbnb, while others use long-term rental comps, which will undervalue your property. Always ask which method they use before applying.
Getting Started
Start by getting pre-qualified with 2-3 DSCR lenders to compare rates and terms. Have your target property’s projected revenue ready (use AirDNA or Mashvisor for estimates). The stronger your DSCR ratio, the better your rate.