If you're a real estate investor in Centennial, CO or anywhere in the Denver metro area, you may have encountered some unique challenges when it comes to financing your properties. Traditional mortgage loans often rely heavily on W-2 income, tax returns, or a lengthy underwriting process, which isn’t always ideal for investors who own multiple properties or operate under an LLC. That’s where DSCR mortgage loans come in.
A Debt Service Coverage Ratio (DSCR) loan is a type of non-QM (non-qualified mortgage) that evaluates a property’s ability to generate enough income to cover its debt obligations, rather than looking at the borrower’s personal income. These loans are commonly used by real estate investors who want to qualify based on the property’s cash flow rather than their own employment or income documentation.
What Is the Debt Service Coverage Ratio?
DSCR is a financial metric used to determine whether a property earns enough income to cover its loan payments. Lenders calculate this ratio by dividing the property’s net operating income (NOI) by its total debt service (principal and interest payments). A DSCR of 1.0 means the property is breaking even; anything higher suggests the property generates more income than it costs to finance.
For a more detailed explanation of how DSCR works, you might find this Investopedia article on DSCR helpful.
This approach shifts the focus from personal tax returns and pay stubs to the property itself, which can be especially beneficial for investors with complex or variable income streams.
Find quick answers to common DSCR questions in our DSCR Loan FAQs below.
Who Typically Uses DSCR Loans?
DSCR loans are most commonly used by real estate investors who are purchasing or refinancing income-producing properties. These borrowers might include full-time investors, part-time landlords, or entrepreneurs who operate under business structures like LLCs or trusts. What they often have in common is a financial profile that doesn’t fit neatly into traditional mortgage underwriting guidelines.
Because DSCR loans evaluate the income generated by the property rather than the borrower’s personal income, they can be especially helpful for investors who don’t earn a predictable W-2 salary, or who prefer not to use tax returns to qualify. This includes people with multiple rental properties, seasonal income, or self-employed business owners.
Rather than providing extensive personal financial documentation, borrowers using DSCR loans typically demonstrate that the property's rental income is sufficient to cover the monthly loan payments. This cash-flow-based approach can make it easier to act quickly in competitive real estate markets like those in Centennial, Aurora, and the greater Denver area where opportunities don’t last long.
What Are the Typical Requirements for a DSCR Loan?
Although guidelines can vary between lenders, DSCR mortgage loans generally follow a few consistent patterns. Most require a down payment of around 20 to 25 percent, and a minimum credit score in the low- to mid-600s is common. These loans are designed with flexibility in mind, especially for borrowers who might not qualify for conventional financing.
One of the major advantages of DSCR loans is that they’re available for a range of residential investment properties. This includes single-family homes, condominiums, townhomes, and small multifamily properties with up to four units. As long as the property can generate enough rental income to cover the monthly loan payments, it may qualify under DSCR guidelines.
Unlike traditional mortgage options, DSCR loans usually don’t require tax returns, W-2s, or extensive personal financial documentation. The focus is almost entirely on whether the property itself produces enough cash flow to support the debt making these loans particularly appealing to real estate investors who prioritize speed, simplicity, and flexibility in their financing.
To better understand how mortgage requirements are structured in general, the Consumer Financial Protection Bureau offers a helpful guide on loan options and processes.
Why DSCR Loans Make Sense in Colorado’s Real Estate Market
The Denver metro area, including Centennial and surrounding cities like Parker, Englewood, and Littleton, continues to attract renters and investors alike. With steady demand and rising property values, rental properties in these areas can often generate enough income to meet DSCR guidelines.
DSCR loans provide a way to take advantage of this environment without the barriers of conventional loan approval. For investors who manage several properties or operate under an LLC, these loans offer a practical path to expand or refinance a portfolio.
If you’d like to explore rental trends in Colorado, the U.S. Department of Housing and Urban Development (HUD) publishes regular data and analysis on rental markets across the country.
Local Expertise Matters
While DSCR loans are offered nationwide, working with a mortgage professional who understands the Centennial and Denver metro area market can make a big difference. Local knowledge can help you better estimate rents, evaluate property performance, and navigate lender expectations with more confidence.
We’re proud to serve investors across Centennial, Parker, Aurora, Highlands Ranch, Littleton, and Englewood helping them make informed financing decisions that align with their long-term goals.
To get your questions answered about your DSCR loan scenario, give us a call at 303-670-0137 or email rbaxter@choicemortgage.com, we're here to help!
DSCR Mortgage Loan FAQs
A DSCR (Debt Service Coverage Ratio) loan is a type of non-QM mortgage for real estate investors, where qualification is based primarily on the investment property's cash flow, rather than the borrower's personal income. It's calculated by dividing the property's gross rental income by its total debt service.
DSCR loans are often easier to qualify for than traditional mortgages, especially for real estate investors. Instead of using your personal income or employment history, lenders focus on the income the property generates.
DSCR stands for Debt Service Coverage Ratio, which is a way of measuring whether the property's rental income is enough to cover the monthly mortgage payment. Most lenders look for a DSCR of at least 1.0 to 1.25.
If the property cash flows well, and you have a solid credit score (usually 620 or higher) and a reasonable down payment (often 20–25%), qualifying is very doable — even if you're self-employed or have a complex income situation.
This type of loan is a popular choice for investors looking for a more flexible way to finance rental properties.
Go more in depth on this question at our blog post here.
Lenders assess the investment property's potential rental income to ensure it can independently cover the proposed monthly mortgage payments and other related expenses. If the property's income meets or exceeds its debt obligations (typically a DSCR ratio of 1.0 or higher), the loan can be approved.
DSCR loans are designed for real estate investors, including individuals and entities, who intend to purchase or refinance properties for investment purposes. They are ideal for those who prefer to qualify based on the property's cash flow rather than personal income documentation.
No, one of the primary benefits of DSCR loans is that they typically do not require personal income verification, W2s, or tax returns for qualification. This flexibility makes them a strong option for self-employed individuals or those with complex income portfolios.
Down payment requirements for DSCR loans usually start from 20-25% of the purchase price, depending on the property type and lender. While credit score requirements can be flexible, a score of 640 or higher is generally preferred for more favorable terms.
Yes, DSCR loans are frequently used for short-term rental properties, as lenders can often use projected rental income from platforms like Airbnb or VRBO to calculate the property's debt service coverage ratio. This flexibility is a significant advantage for investors in Colorado's tourism markets. Check out our blog post on this topic: Unlocking Investment Potential: Can You Use a Non-QM Loan with Airbnb/VRBO Income in Colorado?
Yes, in some cases. If the property doesn’t have a rental history, some lenders may allow projected market rent based on a rental survey or appraisal (Form 1007). Not all lenders offer this, so it’s important to check guidelines.
It depends. DSCR loans offer more flexibility with income documentation, but usually come with slightly higher rates. For investors who want to scale or who write off a lot on taxes, DSCR can be a better fit.
Most of the time, yes. However, some DSCR loans are made in the name of an LLC or business entity and are not reported to personal credit, which helps protect your DTI and personal profile for future financing.
Most lenders look for a DSCR of at least 1.0 (meaning the rent covers the mortgage payment), but some allow slightly lower, especially with stronger reserves or a larger down payment.
Yes — in fact, many DSCR lenders prefer to lend to LLCs or corporations. This structure offers liability protection and keeps the property separate from your personal finances.
DSCR loans typically close in 3 to 4 weeks, depending on the lender and documentation. Since there’s no employment or income verification, the process can be faster than traditional loans.
