The Quick Read: On most files, a DSCR loan on a $400K rental purchase lends about 75% to 80% of the price, subject to lender guidelines, but the property’s rent has to cover the full payment at that loan size, so weak rent can pull the amount below the leverage cap. DSCR is short for debt service coverage ratio. It divides the monthly rent by the monthly housing payment. A conventional loan sets the amount by your income, debts, and credit instead.
- DSCR purchase leverage: typically 75%–80% LTV on an investment-property purchase. Select high-leverage programs reach 85% with roughly a 700+ score.
- DSCR cash-out: tops out around 75% LTV on a standard rental cash-out refinance, and 70% on a short-term rental.
- The real limit: the lower of the leverage cap and what the rent can carry.
- Conventional: the amount follows your documented income, other debts, and credit, plus program caps that vary.
- Down payment: more cash down helps coverage. It never erases credit floors, reserve rules, or property eligibility.
Here is the honest answer on who each option is for. A DSCR loan suits the investor whose property is strong and whose tax returns are not. Think self-employed owners, heavy-deduction filers, and people adding their fifth rental. A conventional loan suits the investor with clean, documented income and few other debts. LTV, or loan-to-value, is the loan as a percentage of the price or appraised value. Both products use it. They just decide the final amount very differently.
DSCR Calculator
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Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 29, 2026
Prefilled with starting assumptions — enter your own rent or nightly figures, taxes, insurance, and HOA for a more accurate picture.
Program parameters update from Lendmire’s centralized guideline source. Taxes and insurance are editable estimates.
As of Oct 29, 2026 · General Freddie Mac market benchmark, not a Lendmire loan offer. Rent, nightly rate, occupancy, taxes, and insurance are editable estimates. Short-term rental figures are estimates only and vary significantly by season, property type, management approach, and local short-term-rental rules — confirm local regulations before relying on them. Qualifying income for short-term rentals varies by program — some use appraisal market rent, others use documented STR history or projections — and is confirmed in underwriting. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
Side-by-Side
The table below compares the DSCR column, drawn from select lenders in Lendmire’s wholesale network, against published industry norms for conventional loans. Both are typical ranges, not promises. Every file is reviewed individually.
| Factor | DSCR Loan | Conventional (industry norms) |
|---|---|---|
| Review basis | Rent vs. payment | Your income, debts, credit |
| Documentation | Lease or rent opinion, credit, entity papers | Tax returns, pay stubs, job history |
| Purchase leverage, investment property | 75%–80% typical; 85% select | Set by program; varies by unit count |
| Cash-out leverage, rental | About 75% (70% short-term) | Generally lower than purchase caps |
| Entity vesting | LLC possible per program terms | Usually the individual borrower |
| Reserves | Commonly ~6 months PITIA | Often required per financed property |
PITIA stands for principal, interest, taxes, insurance, and association dues. It is the full monthly obligation the rent has to cover. Reserves are cash left in the bank after closing, counted in months of that obligation.
What Decides How Much a DSCR Loan Lends on a $400K Rental
Two tests set the number, and the tighter one wins. The first is the leverage cap: on a $400K purchase, most programs we place files with land between 75% and 80% LTV. The second is the coverage test. At the requested loan size, does the rent cover the full PITIA?
Most investors never think about the second test. A bigger loan means a bigger payment, and a bigger payment means a lower coverage number.
Picture a $400K duplex whose rent clears about 1.20x at 75% LTV. Pushing to 80% LTV raises the loan-driven part of the payment, and coverage slips to a little over 1.1x. Still fine. Now picture a single-family rental that clears about 1.05x at 75% LTV. At 80% LTV, coverage lands right around 1.0x. That is the edge of where many select programs start. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Here is the catch. Taxes and insurance do not shrink when the loan does, so a high-tax property can fail coverage at a leverage level that a low-tax property passes easily. Same price. Different loan amount.
Rent comes from the lease or from an appraiser’s market-rent opinion, depending on the program. On a 2–4 unit property, the appraisal report includes a rent schedule where the appraiser reconciles market rent for each unit, as the Fannie Mae Form 1025 layout shows. Lenders borrow that form style for rent estimates only. A DSCR loan is not an agency loan.
Coverage standards vary too. A 1.00 ratio is where select programs start, and a stronger ratio generally opens better leverage and terms. A different select-lender path takes coverage below 1.00, with leverage and terms adjusted.
What a DSCR Ratio Does Not Tell You
Clearing 1.00 does not mean the property makes money. The calculation compares rent to PITIA only. Repairs, vacancy, management, utilities, and big-ticket replacements all sit outside it. A property can pass at 1.15x and still lose money in a year with a new roof.
Treat the ratio as the lender’s test, not your profit forecast. Run your own numbers on top.
How Conventional Counts the Rent
Conventional underwriting does not ignore rent. It just treats it as one input inside an income-and-debt test. For rent on the property being purchased, the Fannie Mae Selling Guide has the lender take 75% of gross monthly rent and subtract the property’s PITIA. The result is a net rental figure that feeds the borrower’s debt-to-income ratio, which is monthly debts divided by monthly income. If the property already appears on your tax return as a rental, the guide has the lender analyze that tax-return history instead of the lease.
That is the one agency detail this comparison needs. A DSCR loan follows its own lender guidelines, not these rules.
In practice, the 75% haircut and the debt-to-income test mean a conventional loan can end up smaller than the leverage cap suggests. The reverse can also happen. A high-income borrower with a modest rent number may borrow more conventionally than a DSCR test would allow. Caps are also set by program, and published investment-property limits are generally lower than owner-occupied limits, so check the current matrix for your scenario.
When a DSCR Loan Is the Better Fit
DSCR wins when your paperwork does not match your real strength. Several situations come up again and again:
- Self-employed or heavy-deduction filers. Tax returns show your income after write-offs. DSCR qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. Credit is still reviewed.
- Portfolio builders. Each added mortgage raises your debt load in a conventional test. DSCR looks at each property’s rent on its own.
- Entity buyers. Many investors want the property held in an LLC, subject to lender program eligibility. Programs often ask for a personal guarantee, so personal credit still matters.
- Short-term rental owners. Short-term rental files run on different leverage and history rules, covered in Lendmire’s piece How Much a Short-Term Rental DSCR Loan Lends on a Paid-Off Property.
- Strong-rent, thin-paperwork deals. A property that rents well can carry a loan your personal income documents would not support.
Credit still sets the leverage tier. A 620 floor exists in parts of our network. Most programs want around 660, and 700+ unlocks the strongest tiers. Loan sizes run up to $3,000,000 on standard programs, so a $400K purchase sits well inside the range.
DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage.
Property type matters as much as ratio. Manufactured homes (single- and double-wide), log homes, and barndominiums are not offered in these programs. If your $400K target is one of those, plan around it early.
When a Conventional Loan Is the Better Fit
Conventional wins when you qualify cleanly and want the simplest structure. The investor who fits looks like this:
- Steady Traditional employment income with low existing debt, so the debt-to-income test leaves room.
- A buy-and-hold plan in your own name, with no need for an entity.
- A property whose rent is modest. A DSCR test could shrink the loan on thin rent, while a strong personal income carries the file.
- A small portfolio. Few financed properties means few of the stacking problems that push people toward DSCR.
Practitioners often say conventional costs less when you qualify. Pricing is beyond this comparison, and the calculator on this site gives only an illustrative estimate. The point here is qualification and structure. If you clear the conventional tests comfortably, DSCR’s main advantages may not matter for your file.
DSCR vs. conventional financing
There are two common ways to finance an investment property, and they qualify you differently — here’s how investors weigh them.
Why investors choose it
- Qualifies on the property’s rental income — no personal tax returns, W-2s, or pay stubs needed to document income.
- No personal debt-to-income ceiling to clear, so existing mortgages and obligations don’t cap your borrowing the same way.
- Can be closed in an LLC, keeping the property inside a business entity.
- Built for scaling — not held to the limit on number of financed properties that conventional financing applies.
- Underwriting centers on the deal: generally qualifies when the rent covers the payment, a 1.00x coverage ratio being a common baseline (confirmed in underwriting).
- Designed specifically for investment property, including long-term and, where the program allows, short-term rentals.
Where it’s strong
- Often the lowest ongoing financing cost for a buyer who fully qualifies on personal income — a fit for a first property or a cost-first purchase.
Trade-offs for investors
- Requires full personal income documentation and must fit within a debt-to-income limit — salary, existing debts, and other mortgages all count.
- Typically held in your personal name rather than a business entity.
- Caps how many financed properties you can carry, which can become a ceiling as a portfolio grows.
- Evaluates you as a borrower as much as the property, which usually means more paperwork.
How investors usually choose: a first or single property often optimizes for the lowest financing cost; portfolio builders often optimize for leverage, vesting in an LLC, and scaling past conventional caps. The right answer depends on your goals, the property, and current guidelines — both paths run through select lenders in Lendmire’s wholesale network, with eligibility and terms confirmed in underwriting.
What If the Rent Falls Short?
You have options, and each one moves the ratio differently.
- Put more down. A lower loan means a lower payment, which lifts coverage. This is the cleanest fix. It still must sit inside leverage caps, credit floors, and reserve rules. The strongest files clear both tests: enough equity and enough rental coverage.
- Choose a longer structure. The 30-year fixed is the spine of most programs. Select lenders in the network offer 40-year terms and interest-only periods, which lower the payment and can lift coverage. ARM structures also exist. Each trades something away, so weigh the long-term cost.
- Use a sub-1.00 path. Coverage below 1.00 is available through select lenders in the network, with leverage and terms adjusted. Expect lower leverage on those files.
- Switch to conventional. If your income is strong, the rent shortfall may not matter there.
- Pick a different property. Sometimes a more affordable fix is a deal where rent and price fit together better.
One more reserve note. Reserves vary by lender, leverage, loan size, and transaction type. About 6 months of PITIA is common. Conservative rate-and-term files at modest leverage under $1,500,000 can see reserves waived. Larger loans typically step up to about 9 months. Seasoning on cash-out refinances commonly runs about 6 months.
The Verdict
Neither loan is better. They answer different questions.
Choose DSCR if your income is hard to document, you hold properties in an entity, or you are stacking rentals. Expect to bring 20%–25% down on most purchases, and run the coverage math before you fall in love with a price. Choose conventional if your income is clean, your debts are light, and you want the simplest path. Run both if you sit in between. The same $400K property can produce two different loan amounts, and the stronger result depends on your file, not the product label.
For the full picture of how these programs fit together, see Lendmire’s complete DSCR loans guide.
Frequently Asked Questions
Can a bigger down payment fix a weak rent number?
It helps, but only to a point. More cash down lowers the loan and the payment, which lifts coverage. It does not change the credit floor, reserve rules, or which property types are eligible. Lenders look for enough equity and enough rent at the same time.
Does clearing 1.00 mean my rental will cash flow?
No. The ratio compares rent to PITIA and nothing else. Repairs, vacancy, management, utilities, and capital replacements are outside the test. Treat a passing ratio as permission to apply, not a profit forecast.
Can I buy a $400K rental in an LLC with a DSCR loan?
Often yes, depending on program guidelines. Lenders usually review the entity papers and may ask principals for a personal guarantee, so your credit still matters. Conventional loans generally close in an individual’s name, which is one reason entity buyers lean DSCR.
Does a short-term rental lend the same amount as a long-term rental?
No. Short-term rental purchases go to about 75% LTV, refinances run around 70%, and cash-outs run 70%. Expect a 640+ score and about 12 months of hosting history. Coverage floors apply on both purchases and refinances. Short-term rental rules vary by city, county, HOA, and property type, so confirm local rules before relying on projected rental income. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Is a 2–4 unit property treated differently?
Yes, in how rent is measured. The appraiser reconciles rent for each unit on the rent schedule, and the combined rent feeds the coverage test. Leverage limits also differ by program and unit count, so a fourplex can land differently than a single-family at the same price.
Next Step
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. Lendmire is a mortgage broker arranging DSCR financing through select lenders in its wholesale network, across 41 markets, including Washington, D.C. Programs change, every file is underwritten individually, and nothing here is a commitment to lend. Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
About Lendmire
A DSCR-focused mortgage broker, Lendmire (NMLS# 2371349) places investor financing across 41 markets — 40 states plus Washington, D.C. — with DSCR eligibility generally reviewed by the lender on property cash flow instead of tax returns, subject to lender guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
2. Fannie Mae Selling Guide B3-3.8-02, Rental Income from the Subject Property
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Get a DSCR Loan Under 75K on a Small Rental? · Can a W-2 Employee Get a DSCR Loan on a Rental? · Can You Get a Higher LTV on a DSCR Rental Loan?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.