Where rentals cash-flow, and how to finance them.

A mortgage for an investment property that qualifies on the rent the property brings in rather than on your personal income. The lender compares the monthly rent with the full monthly payment (principal, interest, taxes, insurance and association dues, or PITIA). No tax returns or pay stubs are needed to show income.

DSCR is monthly rent divided by the full monthly payment (PITIA). A rental that rents for $2,400 with a $2,000 payment has a DSCR of 1.20x: the rent covers the payment with $400 left before vacancy, repairs and management.

Many lenders look for 1.00x or higher, and a ratio of 1.20x to 1.25x often earns better pricing. Some lenders go below 1.00x with a larger down payment or a higher rate. Each lender sets its own minimum.

No. DSCR loans are business-purpose loans for investment properties you rent out. A home you live in, including one unit of a property you house hack, needs a residential mortgage instead.

Cash out is the property value times the lender’s maximum loan-to-value, less the payoff of your current loans and any closing costs paid from the loan. Investment-property cash-out limits are commonly 70% to 75% of value; your lender sets the exact figure.

A fee for paying the loan off early, usually during the first one to five years. On a 5-4-3-2-1 step-down, paying off in year 1 costs 5% of the balance, year 2 costs 4%, and so on until the penalty ends after year 5. Some states limit prepayment penalties.

Many DSCR lenders lend to an LLC that owns the property, usually with a personal guarantee from the members. Ask the lender how it handles the entity, the guarantee and the title before you close.