The financing option that makes traditional underwriters twitch—and why it might be exactly what your deal needs.
If you’ve spent any time shopping for a DSCR loan, you’ve probably internalized one fundamental truth: the property needs to generate enough rent to cover the mortgage. It’s right there in the name—Debt Service Coverage Ratio. The rent divided by the payment needs to hit a magic number, usually 1.0 or higher, and you’re in business.
But what if I told you there’s a growing segment of DSCR lending where that ratio can be 0.75? Or even lower?
Welcome to the world of no-ratio and low-ratio DSCR loans—the financing products that sound like they shouldn’t exist until you understand why they absolutely should.
Wait, How Does a “Low-Ratio” DSCR Loan Even Work?
Let’s start with the obvious question: if DSCR lenders calculate qualification based on the property’s income, what happens when there isn’t enough income to cover the debt?
Traditional logic says the deal dies. The property doesn’t cash flow, so the loan doesn’t fund. Case closed, better luck next time, maybe try a bank (just kidding, they’ll say no faster).
But here’s where things get interesting.
Low-ratio DSCR loans acknowledge a simple reality: not every investment property is purchased for immediate cash flow. Some investors are playing a longer game—buying in appreciating markets, targeting value-add opportunities, or acquiring properties where the rent potential hasn’t been realized yet.
At American Heritage Lending, our Invest Star program accommodates deals that don’t hit the traditional 1.0x threshold. We offer financing at DSCR ratios as low as 0.75x—and in some cases even below that—focusing on the borrower’s overall profile rather than demanding the property pencil out perfectly on day one.
Here’s how we evaluate these deals:
- Borrower liquidity and reserves — Can you cover the shortfall if needed? We require 12 months PITIA reserves for sub-1.0 DSCR deals.
- Credit profile — Are you a responsible borrower with a track record? Minimum 660 FICO, with better terms at 720+.
- Property quality and location — Is this an asset that will hold value?
- Mortgage history — Clean payment record on existing properties (0x30x12 required for sub-1.0 DSCR).
- Experience — Have you owned investment property for at least 12 months in the past 3 years?
The loan still looks at the property as collateral. It’s still a business-purpose investment loan. It just doesn’t require the rent-to-payment math to work out on day one. Our DSCR loan requirements guide covers the full eligibility criteria.
The AHL Advantage: Vacant Properties Welcome
Here’s something that sets American Heritage Lending apart: we finance vacant properties on purchases with no LTV restrictions.
Read that again. Most lenders either won’t touch vacant properties or severely penalize them with LTV haircuts. We take a different approach.
For vacant properties, we use the appraiser’s market rent estimate (Form 1007/1025) to calculate DSCR. This means if you’re buying a property that’s currently empty—whether it’s been sitting vacant, needs to be turned over, or you’re converting it from owner-occupied to rental—we can work with projected market rents rather than requiring a lease in place at closing.
The appraiser provides an objective rent estimate based on comparable rentals in the area, and that becomes the income figure for your DSCR calculation. No tenant? No problem. No lease? We’ve got you covered.
Note: For refinances below a 1.0 DSCR, single-family properties must be leased. But on purchases, the doors are wide open.
The DSCR Spectrum: From 1.25x to Below 0.75x
DSCR requirements exist on a spectrum, and understanding where different products fall helps clarify when low-ratio makes sense. You can model your specific scenario with our DSCR Calculator to see where your deal lands.
Here’s how AHL’s Invest Star program structures LTV by DSCR tier for purchases under $1M:
| DSCR > 1.00: | DSCR 0.75x to 0.99x: | DSCR below 0.75x: |
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The takeaway? Even deals that don’t cash flow can get competitive leverage—if the borrower profile is strong. Our DSCR Playbook walks through exactly how we think about underwriting these scenarios.
When Low-Ratio DSCR Loans Make Sense
Let’s get specific. Here are the scenarios where low-ratio DSCR products are genuinely the right tool for the job:
1. Vacant Properties You’re Converting to Rentals
You just closed on a duplex. Great bones, solid location, but the previous owner lived in one unit and kept the other as storage for their extensive collection of… let’s say “vintage automobiles” (read: three non-running Camaros).
There’s no rental income because there are no tenants. Traditional DSCR underwriting would require a lease—but AHL doesn’t.
How AHL handles this: We use the appraiser’s Form 1007 market rent estimate with no LTV penalty. You close on the vacant property, get it leased up, and you’re generating income within 30-60 days. No bridge loan required, no hard money rates—just standard DSCR financing on day one.
If the property needs significant renovation before it’s rent-ready, a bridge loan might be the better interim solution—but for properties that just need tenants, you can skip that step entirely.
2. Below-Market Rents with Upside
The seller had the same tenant for 12 years paying $1,100 when market rent is $1,600. You’re buying based on the in-place income (smart), but that income doesn’t cover the new debt service.
You know the tenant’s lease expires in four months. You know you’ll be at market rent by summer. But the DSCR calculation happens today, not after you’ve executed your business plan.
How AHL handles this: If your in-place lease results in a DSCR between 0.75x and 1.0x, we can still finance the deal. And here’s a useful nuance: if the Form 1007 market rent is within 20% of your actual lease, we may be able to use the higher 1007 figure for qualification. That flexibility can push a marginal deal into approval territory.
You close at 0.85x DSCR based on the current lease, execute the rent increase when the lease expires, and suddenly you’re at 1.25x without refinancing.
3. High-Appreciation Markets Where Cash Flow Is Secondary
Let’s be honest: if you’re buying in certain markets—coastal California, parts of South Florida, prime Austin neighborhoods—you’re probably not doing it for the 8% cash-on-cash return. You’re doing it for appreciation, tax benefits, and long-term wealth building. Our analysis of top markets for rental property investors highlights where these dynamics play out most favorably.
The rent covers most of the payment. You’re happy to feed the property a few hundred bucks a month because you’re confident the asset will be worth significantly more in five years. Traditional DSCR says “sorry, doesn’t qualify.” Low-ratio says “we see what you’re doing here.”
How AHL handles this: With 12 months of reserves and a clean mortgage history, we’ll finance appreciation plays down to 0.75x DSCR. And with our 40-year fixed option featuring 10 years of interest-only payments, you can minimize the monthly cash outlay while you wait for the appreciation thesis to play out.
4. Short-Term Rental Conversions
You’re buying a property you plan to operate as an Airbnb. The long-term rental income doesn’t cover the debt service—that’s not the play. The STR income will be 2x what a long-term tenant would pay. Our guide to DSCR loans for Airbnb and short-term rentals covers the full underwriting approach.
How AHL handles STR income:
- For purchases: We can use 75% of the projected STR income documented by Form 1007 or a property management report
- For purchases and refinances with history: We can use 100% of STR income documented by 12 months of deposits from Airbnb, VRBO, or similar platforms
This means you don’t have to wait until you’ve operated the STR for a year to refinance—we can underwrite to projected income on the purchase itself, getting you into the deal at DSCR rates rather than bridge or hard money.
(A word of caution: make sure the STR play is actually viable. Check local regulations, HOA rules, and market saturation before assuming you’ll be swimming in booking revenue. STR loans require a minimum 1.0x DSCR.)
5. The “I Just Need to Close” Scenario
Sometimes, frankly, you need a loan product that says yes. You’ve got a motivated seller, a tight timeline, and a property that’s going to be a great investment—but the current rent situation is messy.
Low-ratio products exist for deals where the story is more complicated than “here’s the rent, here’s the payment, here’s your 1.15x ratio.”
The Trade-Offs (Because There Are Always Trade-Offs)
If low-ratio DSCR loans sound too good to be true, let’s pump the brakes and talk about what you’re giving up:
Higher Interest Rates
Lenders price for risk. A loan where the property doesn’t demonstrably cover its own debt service is riskier than one where it clearly does. Expect rates to be higher than standard DSCR products at 1.0x or above.
Is it worth it? That depends on your hold period and exit strategy. If you’re refinancing in 12 months after stabilizing the property, the rate premium for a year might be a rounding error compared to the deal you’re capturing. Our article on optimizing your DSCR loan as rates change covers refinancing strategy in detail.
Lower Maximum LTV
As the DSCR drops, so does your maximum loan-to-value ratio. At DSCR > 1.0x with a 760+ FICO, you can get up to 85% LTV on purchases under $1M. Drop to DSCR 0.75-0.99x, and you’re looking at 75% max. Below 0.75x, the ceiling varies by FICO but generally tops out at 75% for the strongest borrowers.
This means more cash at closing, which affects your returns. Run the numbers to make sure the equity requirement doesn’t blow up your deal economics.
Experience Required
This is important: Low-ratio DSCR loans (below 1.0x) at AHL require prior investment property ownership. You must have owned an investment property for at least 12 months within the last 3 years. First-time investors are welcome for DSCR > 1.0x deals, but sub-1.0 DSCR requires a track record.
If you’re new to investing, focus on deals that hit at least 1.0x DSCR to get started. Our guide for first-time investors and DSCR loans covers what you need to know. Build your portfolio, establish your track record, then graduate to the more flexible products.
Reserve Requirements Are Higher
For DSCR below 1.0x, AHL requires 12 months of PITIA reserves (principal, interest, taxes, insurance, and association dues). Compare that to 3-6 months for standard DSCR deals.
Good news: Loan proceeds can be used for reserves. So if you’re doing a cash-out refinance and need to show 12 months reserves, the cash you’re pulling out counts.
Perfect Mortgage History Required
For sub-1.0 DSCR loans, you need a clean mortgage payment history: 0x30x12, meaning zero late payments of 30+ days in the past 12 months on both your primary residence and any subject property. Lenders are essentially saying: “We’ll approve this deal because we trust you, not because we trust the property’s income.”
Prepayment Penalties Apply
AHL’s DSCR products include prepayment penalties—either a fixed 5% for 1-5 years, or a declining structure starting at 5% with a 3% floor. If you’re planning to refinance quickly once the property stabilizes, factor this into your analysis.
How to Position Your Low-Ratio Deal for Approval
If you’re pursuing a low-ratio DSCR loan, here’s how to put your best foot forward. Understanding the most common reasons DSCR loans get declined will help you avoid the typical pitfalls.
Tell the story. Don’t just submit the application and hope the underwriter figures it out. Explain why the current DSCR is low and what your plan is to improve it. “Vacant property, will lease at $X within 60 days” is a story. “Below-market tenant, lease expires in 90 days, market rent is $Y” is a story.
Show your liquidity. If you’ve got 12 months of reserves sitting in the bank, say so. Loudly. This is the single biggest mitigating factor for a weak DSCR. Remember: at AHL, loan proceeds count toward reserves on cash-out refinances.
Demonstrate experience. List out the investment properties you’ve owned, when you acquired them, and your track record of success. If you’ve executed similar plays before—bought vacant, stabilized, refinanced—document it.
Keep your mortgage history clean. That 0x30x12 requirement is non-negotiable for sub-1.0 DSCR. Make sure all your mortgages are current before you apply.
Provide the appraiser context. Since we use Form 1007 market rents for vacant properties, make sure the appraiser has good rental comps. If you know of recently leased comparable properties in the area, share that information.
Consider interest-only. Our 40-year fixed product with 10 years of interest-only payments lowers your PITIA, which improves your DSCR calculation. A deal that’s 0.90x with full amortization might be 1.05x with interest-only—pushing you into a better pricing tier.
AHL Program Highlights for Low-Ratio Deals
Here’s a quick reference for what AHL offers on sub-1.0 DSCR transactions:
| Invest Star Program (DSCR 0.75x – 0.99x): | Invest Star Program (DSCR below 0.75x): | Property Types Eligible: |
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The Bottom Line
Low-ratio DSCR loans aren’t for every deal—but they’re a legitimate tool for investors who understand what they’re doing and have the financial strength to execute.
They exist because the real estate investment world is messier than a simple “rent ÷ payment ≥ 1.0” formula. Properties transition. Rents reset. Value-add plays take time to materialize. And sometimes, the right move is to close now and let the income catch up later.
At American Heritage Lending, we’ve funded plenty of deals that didn’t pencil out on paper—and watched them become excellent investments once the borrower’s business plan came to life. Our ability to finance vacant properties at full LTV, accept projected STR income, and work with DSCR as low as 0.75x (or below) gives investors flexibility that many lenders simply don’t offer. Browse our case studies to see examples of creative financing in action.
If you’ve got a deal that’s stuck because the DSCR doesn’t quite work, let’s talk. Get prequalified today and we’ll look at your scenario. There might be a path forward that doesn’t require the property to cash flow on day one.