Guide · Self employed mortgages
Real Estate Investors: DSCR Loans and How Depreciation Affects Qualifying
Depreciation is one of the best tax tools an investor has. It can also make your rentals look like they lose money on paper. Here are the two ways around that.
Option 1: Full doc, with Schedule E read correctly
For a regular loan, lenders read the Schedule E on your tax return for each rental. They don't stop at the net loss. They add back depreciation, mortgage interest, property taxes, insurance and HOA dues, then subtract your actual payment. A property that shows a loss on paper often shows positive cash flow once it's read this way.
This route usually has the best rates, so it's always the first thing I check.
Option 2: DSCR, qualify on the property's rent
DSCR stands for debt service coverage ratio. The lender compares the property's rent to its full payment: principal, interest, taxes, insurance and any HOA. If the rent covers the payment, you can qualify without showing personal income or tax returns at all.
- Rent comes from the current lease or the appraiser's estimate of market rent
- Many programs want the rent to cover the payment or better, and some allow a little less with a bigger down payment
- Investment properties only, not a home you'll live in
- You can close in your name or your LLC's
- No limit on how many properties you own with many lenders
DSCR rates and down payments are usually higher than a conventional loan. The trade off is speed, simplicity and no tax returns.
Which one fits?
If your returns show steady rental income after add backs, full doc usually wins on cost. If you have a lot of properties, recent purchases that don't show on your returns yet, or you'd rather keep your tax strategy as is, DSCR is often easier.
Buying your own home as an investor
Investors often get stuck when they buy a primary residence, because the rentals drag down their ratios on paper. Reading Schedule E correctly fixes most of that. If not, a bank statement loan can work. See all the options.
Common questions
Can I get a DSCR loan for a home I'll live in?
No. DSCR loans are only for investment properties. For your own home we'd use a full doc loan with your rentals read correctly, or a bank statement loan.
Can I buy in my LLC?
With a DSCR loan, usually yes. Conventional loans generally close in your personal name.
Want me to look at your numbers?
Free and confidential. I'll tell you which program fits and what you'd qualify for, and I'm happy to loop in your CPA. Hablo español.
More guides
- Getting a Mortgage as an S Corp Owner: How Lenders Read Your K-1
- 1099 Contractors and Agents: How to Qualify for a Mortgage
- Using Business Funds for Your Down Payment
- Buying a House While Your Taxes Are on Extension
General information, not tax or legal advice. Program terms vary by lender and change often. Not every borrower will qualify.