Key Takeaways
- A bank statement mortgage measures your income using eligible deposits, usually from 12 or 24 months of statements. The lender then reviews your debts and the proposed monthly payment.
- A DSCR loan measures the rental property’s income against its proposed monthly payment. It generally does not use your personal debt-to-income ratio to qualify that property.
- Bank statement programs may finance a primary home, a second home, or an eligible rental. DSCR programs finance investment properties; occupancy and use must meet the lender’s rules.
- A rental with a DSCR below 1.00 may still have financing options. Some DSCR programs accept lower ratios, and a bank statement loan may work if your income and debts support it.
- Compare the complete offers on the same rental before deciding: cash needed, monthly payment, lender fees, reserves and any prepayment penalty.
A bank statement loan and a DSCR loan are two non-qualified mortgages that both help someone whose tax returns do not support financing for a conventional mortgage. These alternative loans look at different sources of income to determine whether you qualify. A bank statement loan uses your eligible bank deposits to estimate your income and checks whether you can afford the mortgage alongside your other debts. A DSCR loan is for an investment property and focuses on whether its qualifying rent supports the proposed payment.
If you’re deciding between a bank statement loan and a DSCR loan, start with how you plan to use the property. If you’ll live in it, a bank statement loan might be the better fit; DSCR loans are generally for investment properties. If you’re buying a rental, either loan could fit. Compare how you’d qualify for each, then weigh the down payment, rate, fees, and monthly payment.
What is the difference between a bank statement loan and a DSCR loan?
A bank statement loan is a mortgage that establishes your qualifying income through personal or business bank deposits instead of the usual tax-return calculation. The lender then considers your debts to decide whether the payment fits. A DSCR loan is an investment-property mortgage that compares qualifying rental income with the proposed property payment. It generally does not use your personal income or debt-to-income ratio (DTI) to qualify that rental. Both lenders still review credit, property value, and money available for the purchase and reserves.
| Question | Bank statement loan | DSCR loan |
|---|---|---|
| What supports qualification? | Eligible deposits establish your income; the lender also measures DTI. | Qualifying rent is compared with the proposed property payment; personal DTI generally is not used for this loan. |
| What can it finance? | A primary home, and sometimes a second home or investment property, depending on the program. | An eligible investment property, including some short-term rentals; not a primary residence. |
| What income records matter most? | Personal or business bank statements and, where required, documents explaining the business or its expenses. | A lease, appraiser-supported market rent, or accepted short-term-rental records, depending on the property and program. |
| Can you purchase through an LLC? | Ask the lender; entity borrowing is less common in consumer bank statement programs. | Often possible, usually with review of the entity and a personal guarantee. |
| What tends to limit the loan? | Qualifying income after business expenses, other debts, credit, and available funds. | Qualifying rent, the proposed payment, property value, credit, and available funds. |
Which properties can you finance with each loan?
A home you’ll live in
If you’re self-employed, a bank statement loan could help you buy a home to live in when your deposits show enough qualifying income. DSCR loans are for investment properties. If you can qualify using your tax returns, compare a conventional mortgage too.
A second home you’ll use
Some bank statement loan programs allow loans for second homes. DSCR loans are for investment properties, so tell the lender if you plan to spend time in the home, rent it out, or both. Your plans with the property will affect which property category applies and which loan programs are available.
A long-term or short-term rental
DSCR financing is designed for rentals, subject to the lender’s rules for property type, rent documentation, and local short-term-rental restrictions. Some bank statement programs also accept investment properties, but they will qualify you using deposits and debts. For a rental, check the DSCR path first, then ask whether a bank statement investment-property program gives you a useful alternative.
How does a bank statement loan determine whether you qualify?
A bank statement lender first estimates your qualifying income from deposits, then checks whether that income can cover the new mortgage alongside your other debts.
How does the lender calculate your income?
Bank statement loans are designed mainly for self-employed borrowers. A lender generally reviews 12 or 24 consecutive months of personal or business statements instead of verifying income from tax returns. It adds up eligible deposits, leaves out transfers between your own accounts, as well as other deposits that are not business earnings, then calculates a monthly average of qualifying income.
For business statements, the lender typically applies an expense factor to account for operating costs. If it accepts $20,000 a month in deposits and applies a 50% expense factor, your qualifying income would be $10,000 a month. The factor can vary by lender and business, and supporting documents may justify a different percentage. With personal statements, a lender may count all eligible income deposits without applying the business expense factor.
What else does the lender check?
The lender also calculates your debt-to-income ratio, or DTI, by dividing your required monthly debt payments, including the new mortgage payment, by your qualifying monthly income. If you’re buying an investment property, ask how the lender will count expected rent from that property and payments on rentals you already own. Lender rules on counting expected rental income and payments on properties you already own can affect how much you can borrow.
You’ll also need to meet the lender’s credit and property requirements and show you have funds for closing and any required reserves. Our bank statement loan requirements guide covers those factors in more detail.
How does a lender decide if a rental qualifies for a DSCR loan?
How does the lender calculate DSCR?
DSCR stands for debt service coverage ratio. In many residential rental programs, the lender divides the property’s qualifying gross monthly rent by its proposed monthly PITIA: principal, interest, property taxes, insurance and any homeowners association dues. The proposed payment is what you would owe under the new loan, including those property costs.
DSCR = qualifying monthly rent ÷ proposed monthly PITIA
If the lender accepts $3,000 a month in rent and the proposed PITIA is $2,500, the ratio is 1.20. Rent is 20% higher than the payment. A 1.00 ratio means rent and PITIA are equal; below 1.00, the accepted rent falls short. Some programs use different ways to calculate coverage, so ask which rent and payment figures went into the lender’s ratio.
Which rental income does the lender use?
For an occupied long-term rental, a lender may compare the lease with the appraiser’s market-rent estimate and use the lower figure. A vacant property may qualify using appraiser-supported market rent.
For a short-term rental, the lender may require a record of actual payouts or accept approved market projections. Purchase and refinance rules can differ, and an advertised nightly rate is not necessarily qualifying income.
What else affects approval?
Each lender sets its own DSCR requirements. A ratio of 1.00 shows that qualifying rent covers PITIA, while a higher ratio, sometimes 1.25 or above, may help with pricing. Some programs accept a ratio below 1.00 when factors such as credit, equity, or cash reserves support the loan. A separate no-ratio option does not use rental income to qualify at all.
The lender also reviews your credit, the property, your down payment or equity, and your available reserves. If more than one program is available, compare the required cash at closing and the loan terms, not just the DSCR threshold.
What if the rental income does not cover the mortgage payment?
Start by checking the lender’s rent figure and full proposed PITIA. For example, $2,400 in accepted monthly rent divided by $2,600 in PITIA produces a DSCR of about 0.92. The rent falls $200 short of the housing payment before any allowance for vacancies or repairs.
The DSCR does not decide the loan on its own. A lender might offer a below-1.00 or no-ratio DSCR program, although its down payment, reserve and pricing terms may differ. Putting more down can also lower the proposed monthly principal-and-interest payment and improve the ratio. If your own qualifying income is strong, an investment-property bank statement program may be another option, provided the lender offers one and your DTI works.
A different loan may help you qualify, but it won’t eliminate the property’s $200 monthly shortfall. Make sure you can cover that gap, along with repairs, higher insurance costs, and months without a tenant. If the property needs major work, ask whether it meets each program’s property requirements. Strong income or projected rent alone won’t make an ineligible property qualify.
How do down payments, reserves and costs compare?
For a rental property, expect a down payment of roughly 20% to 25% with either a bank statement loan or a DSCR loan. Some lenders offer lower down payments to qualified borrowers. For example, Griffin Funding has options starting at 15% down for both loan types. Your actual requirement depends on the property, your credit, and the program.
A lender may require more than its advertised minimum down payment. With a bank statement loan, putting more down reduces the new monthly payment, which may help your debt-to-income ratio. With a DSCR loan, it reduces the payment measured against the property’s rent, which may improve its DSCR.
For both loans, plan for closing costs and any required reserves. Reserves are funds you must still have available after closing; they are not a fee paid to the lender. Our bank statement loan down payment guide explains how down payments and loan-to-value limits affect the cash you need.
To compare costs, ask for quotes on the same rental with the same down payment and loan term. Review the cash due at closing, required reserves, monthly payment, interest rate, points, and lender fees. Ask whether either loan has a prepayment penalty, which is common with DSCR loans, and whether an interest-only period would raise your monthly payment later.
Does a DSCR loan make it easier to build a rental portfolio?
It can. When you seek another rental loan, a DSCR program generally assesses that property’s rent without calculating your personal DTI again. That may be useful when existing mortgages make an income-based application difficult. You still need to meet the lender’s credit, cash, property and any portfolio requirements. There is no set number of rentals at which you must switch products.
If you later apply for a bank statement mortgage on your own home, that lender may consider obligations tied to your rentals, even if you used DSCR loans to purchase them. It may also give you credit for documented rental income under its rules. Have the lender calculate DTI using all your properties before assuming a DSCR purchase will leave your future borrowing capacity untouched.
How should you decide between a bank statement loan vs. a DSCR loan?
For a rental with well-documented rent that comfortably covers the proposed payment, start with a DSCR quote. If rent is weak or difficult to document but your deposits support the payment, check whether a bank statement lender finances that kind of investment property. Also ask about below-1.00 DSCR options; neither path is an automatic winner.
If both work, request written offers for the same property and loan term. Ask how much each program requires you to put down, then compare the monthly payment, cash needed at closing, reserves, and the cost of selling or refinancing when you expect to. A favorable qualifying calculation does not necessarily produce a better loan offer.
Questions to ask a lender
- Can your bank statement program finance this property’s intended occupancy and rental use?
- Which deposits would you exclude, and what business expense factor would you apply?
- If I use bank statement financing, how will you count the new rental’s income and payment in DTI?
- If I use DSCR financing, what rent source and PITIA will you use, and what ratio does that produce?
- Does either program permit my intended ownership structure, such as an LLC, and would I give a personal guarantee?
- What are the down payment, closing costs, reserves and any prepayment penalty for each option?
Next step:
- For a home you will occupy, use our bank statement loan requirements guide to see what lenders look for in your deposits, credit, and available funds.
- If you’re buying a rental, ask a DSCR lender what rent it would count and what monthly property payment it would use.
- Our lender comparison can help you find lenders to ask about rental-property programs and how they calculate your income.
Compare bank statement loan lenders
Frequently Asked Questions
Can a self-employed borrower use a DSCR loan?
Yes, if the property and borrower meet the investment program’s requirements. A DSCR lender generally does not calculate qualifying income from your business deposits. It will still review credit, funds for the purchase, and reserves. Your self-employment alone does not require a bank statement loan for a rental.
Can a vacant rental qualify for a DSCR loan?
Often, yes. A lender may use appraiser-supported market rent when there is no current lease, subject to its vacancy and property-condition rules. Ask what rent evidence it accepts before assuming that your own projected rent will be used.
Does a DSCR loan stay out of my personal DTI forever?
No blanket rule says it does. The DSCR lender typically does not use personal DTI to qualify the rental, but a future lender may consider your mortgage obligations, guarantees and rental income when reviewing another application. Ask that lender to calculate your DTI with your actual properties.
Can I refinance a bank statement rental loan into a DSCR loan later?
Potentially. The rental must meet the new lender’s property, credit, equity and DSCR requirements at the time of refinancing. Compare the new rate and fees with your existing payment, and check whether paying off the current loan triggers a prepayment penalty. A refinance is a new approval, not an automatic switch.
Can I buy a rental through an LLC with either loan?
Many DSCR programs allow an LLC to own the property, subject to entity documents and usually a personal guarantee. LLC borrowing is less consistently available with bank statement programs, particularly those intended for a home you will occupy. Ask the lender how it will title the loan and whether you must guarantee it.
Are bank statement loans and DSCR loans both non-QM mortgages?
They are often grouped together as alternative mortgage products, but the label needs context. A bank statement loan for a home you will occupy is usually a consumer non-QM mortgage: the lender uses alternative income documentation while still assessing your ability to repay. A typical DSCR rental loan is business-purpose financing, so consumer qualified-mortgage rules do not apply in the same way. The practical difference for this comparison is still what supports approval: your qualifying income or the rental property’s income.