A DSCR loan lets you buy a rental based on what the property earns instead of what you earn. No W-2s, no tax returns, no debt-to-income ratio. For a lot of Indianapolis investors that is the only way to get past rental number four or five, because conventional underwriting starts choking on your own income long before the deals stop making sense. The product is also having a moment. HousingWire reported on September 12, 2026 that DSCR and investor loan lock volume is up 130% since January 2022, and that the rules lenders use to approve these loans now vary a lot from one lender to the next. That second part is what this post is about.
How a DSCR loan actually works
DSCR stands for debt service coverage ratio. On a rental loan, lenders calculate it one way: the property's monthly rent divided by its full monthly payment, which includes principal, interest, property taxes, insurance and any HOA dues (lenders call that bundle PITIA).
- 1.0 means the rent exactly covers the payment.
- 1.2 means the rent is 20% more than the payment.
- Below 1.0 means the rent does not fully cover it, and some lenders will still lend.
That is different from the commercial version of DSCR you may have seen, which uses net operating income over annual debt service. On a single-family or small multifamily rental, the lender is looking at gross rent against PITIA. Vacancy, repairs and management are not in the ratio, which is exactly why you have to account for them yourself. DSCR is one of the investing metrics we suggest tracking on every rental, alongside cash-on-cash return.
The rent figure comes from either a signed lease or the appraiser's estimate of market rent. Kiavi, for example, uses the lower of 110% of appraised market rent and your actual lease. So a great lease does not automatically carry the deal if the appraiser disagrees.
What lenders require right now
This is where "fragmented underwriting" shows up. Four lenders, four different rulebooks, all checked September 14, 2026:
| Lender | Minimum DSCR | Max LTV (purchase) | Min credit | Prepayment penalty |
|---|---|---|---|---|
| Kiavi | As low as 0.8 | 80% | Not published | None after year 3 |
| Lima One | 1.0 (best pricing at 1.2+) | 80% (75% cash-out) | 660 | None, 3, 5 or 7 years |
| Griffin Funding | No minimum | Up to 85% at 740+ credit | 620 | Typically 1 to 5 years |
| Visio Lending | Not published | 80% | 680 | 5-4-3-2-1, 3-2-1 or 3-0-0 |
Moody's reviewed roughly 30 DSCR lenders in late August 2026 and found that 40% of programs allow ratios between 0.75 and 0.99, 30% let borrowers use the higher of appraised and actual rent with no cap, and 73% let cash-out proceeds count toward required reserves. You will hear "you need a 1.25" a lot. Some lenders do want that. Plenty do not. The number that matters is the one in your lender's guidelines, and the lower the ratio a lender accepts, the more you pay for it in rate or down payment.
Plan on 20% to 25% down, a credit score somewhere between 620 and 680 depending on the lender, and three to six months of payments in reserve. Many lenders prefer or require an LLC, usually with your personal guarantee on top.
The math on a typical Indy rental
Here is what a DSCR loan looks like on a $250,000 Indianapolis single-family rental with 25% down, so a $187,500 loan on a 30-year fixed.
| Line item | Monthly |
|---|---|
| Principal and interest at 7.125% | $1,263 |
| Property tax at Indiana's 2% cap on a $250,000 assessment | $417 |
| Landlord insurance at $1,100 a year | $92 |
| Total PITIA | $1,772 |
That puts the rent you need at:
- $1,772 a month to hit a 1.0 ratio
- $2,126 a month to hit 1.2 and get Lima One's best pricing
- $1,417 a month to squeak in at a 0.8 lender
Some context on those numbers. The 7.125% rate is the low end of the 7.125% to 7.25% range Constructive Loans quoted to HousingWire in September. Advertised rates from other lenders start lower, but advertised floors assume the best credit, the lowest leverage and often an ARM. Freddie Mac's 30-year average for owner-occupied loans was 6.76% the week of September 10, so a DSCR loan usually costs you something extra. Our Indianapolis mortgage rates page keeps the current numbers and payment math.
The tax line is the ceiling, not a guess. Indiana caps non-homestead residential property taxes at 2% of gross assessed value, and Purdue economist Larry DeBoer notes that much of the state's rental housing sits in tax districts with rates high enough that the cap is what the owner actually pays. The 2025 property tax law (SEA 1) adds a new deduction for rentals that starts at 6% of assessed value in 2026 and phases up to 33.4% by 2031, but DeBoer points out that it changes nothing for a rental already at its cap, because the cap is based on gross value. Our Indianapolis property tax guide for investors walks through how to check a specific parcel.
And rent is the input that gets people. Zillow puts the typical Indianapolis metro rent at $1,571 for July 2026, and half of local listings were offering a concession that month. That metro figure mixes apartments and houses, so a three-bedroom house will usually rent for more. But if the deal only works at 1.2 when you assume top-of-market rent, it does not really work at 1.2. Our Indianapolis rental market breakdown has rent by area.
When a DSCR loan makes sense
- You are self-employed or your tax returns show low income. This is the original use case. Write-offs that help you at tax time hurt you on a conventional application.
- You already own several financed properties. Conventional loans get harder to stack. DSCR loans are underwritten property by property.
- You are refinancing out of a BRRRR. Cash-out DSCR refis are the most common use. Griffin Funding says 72% of its DSCR loans this year were cash-out. If that is your plan, our BRRRR vs new construction math is worth a read first.
- You want to close in an LLC. Many DSCR lenders prefer or require one anyway.
If you have W-2 income, a few properties and clean returns, price a conventional investment loan too. It is often cheaper. Our guide to financing an investment property in Indianapolis compares the main options.
What to check before you sign
The prepayment penalty. This is the one that bites. A 5-4-3-2-1 structure charges 5% of the loan balance if you pay it off in year one, 4% in year two, and so on. Sell or refinance a $187,500 loan in year one and that is a $9,375 check. Lenders give their lowest rates on the longest penalties, so a cheaper rate can cost you more if you exit early. Because DSCR loans on non-owner-occupied rentals count as business-purpose loans, the federal disclosure rules for home mortgages do not apply, so ask for the penalty terms in writing before closing.
Loan term and rate type. ARMs and interest-only options make the first few years look great. Chad Schieler, who built a roughly 1,000-unit portfolio in five years, told us on Roots Pod #65 what he watches first: "Buy at the right price. If you overpay, you're going to be going to be maybe in trouble. Second thing is your loan term. Make sure you have enough time left to go withstand those cycles." He also said: "Fixed rate debt is all I've ever done."
The appraisal. A low value or a low market-rent estimate is the most common reason these deals fall apart late. Have a plan B, which usually means more cash at closing.
Reserves and vacancy. The ratio does not include vacancy, repairs, turnover or management. Chad's advice on the same episode: "Make sure you got reserves in place. Make sure you you're not highly leveraged on a deal." Run the full numbers with our step-by-step cash flow guide, not just the ratio the lender cares about.
Occupancy. A DSCR loan is for a property you rent to someone else. If you plan to live in it, even part-time, it is not the right loan, and misstating occupancy is mortgage fraud.
Where to start
Pick the property first, then the loan. If you are still choosing an area, start with the best Indianapolis neighborhoods for rental property and our under-$300K investment comparison, and if you are buying from another state, read our out-of-state investor guide. Figure out realistic rent for that specific house, run PITIA at a real quoted rate, and see which lenders' minimums it clears with room to spare. If you want help pressure-testing rent on a property you are looking at, send it to us and we will pull comparable leases in that neighborhood.
Want this in your inbox? The Roots newsletter covers the Indianapolis market, deal-type breakdowns and what we are seeing on the ground. Subscribe to the Roots newsletter.
Sources: HousingWire, DSCR loans are booming amid fragmented underwriting standards, Sept 12, 2026; Freddie Mac Primary Mortgage Market Survey, Sept 10, 2026; Kiavi DSCR loans; Lima One rental loans; Lima One on prepayment penalties; Griffin Funding DSCR loans; Visio Lending process; NerdWallet on DSCR loans; Zillow July 2026 rent report; Indiana DLGF circuit breaker caps; Purdue Extension on the 2025 property tax reform; CFPB Regulation Z business-purpose exemption; Obie, landlord insurance in Indiana.
Frequently asked questions
Quick answers from this guide.