DSCR Loans Explained: How Investors Finance Key West Rental Property
A DSCR loan is a mortgage for investment property that qualifies you based on the rental income the property produces, not your personal income or tax returns.
The lender divides the property's monthly rent by its monthly housing payment. If the rent covers the payment, you can usually qualify.
For a lot of Key West investors, that is a big deal. Self-employed buyers, business owners, retirees, and people who already own several rentals often look great on paper and still struggle to qualify for a conventional loan because of how their income shows up on their tax returns. A DSCR loan sidesteps that.
But Key West has its own math. High prices, real insurance costs, and our rental license rules all change how a DSCR loan works here. So let's break it down with real numbers and real talk.
Key takeaways
DSCR stands for debt service coverage ratio: monthly rent divided by the monthly payment (principal, interest, taxes, insurance, and HOA dues).
Most lenders want a DSCR of at least 1.0, and 1.2 or higher usually gets the best pricing.
Expect 20 to 25 percent down on most rentals, and often 25 to 30 percent for short-term rentals in seasonal markets.
Credit minimums usually start around 620 to 660, with the best rates above 700.
In Key West, insurance and rental licensing often decide whether a deal works, so run those numbers before you write an offer.
What is a DSCR loan?
First things first... What the hell is a a DSCR loan?
Well, A DSCR loan is a type of non-QM (non-qualified mortgage) investment property loan. Instead of reviewing W-2s, pay stubs, and tax returns to calculate your debt-to-income ratio, the lender looks at whether the property can pay for itself.
It is only for investment property. You cannot use a DSCR loan on a home you plan to live in. Eligible properties usually include single-family homes, 2 to 4 unit properties, townhomes, and many condos.
How do you calculate DSCR?
DSCR = monthly rental income ÷ monthly PITIA
PITIA is principal, interest, taxes, insurance, and association dues. Here is what the result means:
DSCR above 1.0: the rent more than covers the payment. This is where most lenders want you.
DSCR of exactly 1.0: the rent covers the payment and nothing more. Many lenders accept this.
DSCR below 1.0: the property does not fully cover its own payment. Some lenders still offer programs here, usually with a larger down payment, more reserves, or a higher rate.
How do lenders decide what the rent is?
This is the question that matters most in the Florida Keys, because the answer changes the whole ratio.
For a long-term or monthly rental, lenders typically use an existing lease or the appraiser's market rent estimate (Fannie Mae Form 1007, the rent schedule).
For a short-term rental, lenders generally use one of these:
Actual booking history. Often 12 months of payout statements from Airbnb, VRBO, or a property manager.
A projection from AirDNA (or a similar data source) for a property with no rental history. Many programs only count 70 to 80 percent of the projected gross income to account for seasonality and vacancy.
The long-term rent from Form 1007, which is usually much lower than what the property earns as a vacation rental.
Lenders also generally require that the property can legally operate as a short-term rental under city, county, and HOA rules. In the City of Key West, that means a transient rental license. Without one, rentals must be monthly or longer, and a lender will usually size the loan on monthly rent. (See our [Rental Licenses hub] and our [Fantasy Fest vacation rental post] for how transient licenses work.)
DSCR loan requirements in 2026
Every lender sets its own guidelines, but here is what is typical right now:
Minimum DSCR: 1.0 for most programs. 1.2 or higher usually unlocks the best pricing.
Credit score: about 620 to 660 minimum. Better pricing above 700.
Down payment: 20 to 25 percent for most rental purchases. Many short-term rental programs want 25 to 30 percent in seasonal or vacation markets.
Cash reserves: often 3 to 6 months of payments after closing, and 6 months or more for short-term rentals.
Interest rate: usually higher than a conventional investor loan. One lender reported DSCR rates averaging in the low 7 percent range nationally in mid-2026. Rates change daily, so get a live quote.
Prepayment penalty: common. A typical structure is a 5-4-3-2-1 step-down, meaning a 5 percent penalty if you pay off the loan in year one, dropping 1 point each year until it disappears after year five.
Ownership: many DSCR lenders allow you to close in an LLC, which conventional lenders generally do not. Talk to your attorney and CPA about whether that makes sense for you.
DSCR loan vs. conventional investment loan
How you qualify: DSCR uses the property's rent. Conventional uses your personal income and debt-to-income ratio.
Documentation: DSCR usually needs no tax returns or pay stubs. Conventional needs full income documentation.
Interest rate: DSCR is usually higher. Conventional is usually lower.
Number of properties: DSCR generally has no conventional property-count cap. Conventional limits how many financed properties you can hold.
Closing in an LLC: often allowed with DSCR. Generally not allowed with conventional.
Prepayment penalty: common with DSCR. Rare with conventional.
If you have strong, easy-to-document W-2 income and only own one or two rentals, a conventional loan may cost less. If your tax returns don't tell the whole story, or you are building a portfolio, a DSCR loan is worth a conversation.
What a DSCR loan looks like on a Key West property
Here is an illustrative example. These are round numbers to show how the math works, not a quote or a prediction for any specific home.
The property: a $1,200,000 home in Key West.
Assumptions: 30-year loan at 7.25 percent, property taxes of about $1,100 a month, and combined wind, flood, and homeowners insurance of about $1,400 a month. No HOA.
Scenario 1: 25 percent down, monthly rental (no transient license)
Loan: $900,000
Principal and interest: about $6,140 a month
Total PITIA: about $8,640 a month
Monthly rent: $6,000
DSCR: about 0.69. Below most lenders' minimums.
Scenario 2: 25 percent down, transient-licensed property
Same $8,640 monthly payment
Projected short-term revenue of $150,000 a year, counted at 75 percent: $9,375 a month
DSCR: about 1.09. Qualifies with many lenders.
Scenario 3: 40 percent down, monthly rental
Loan: $720,000
Total PITIA: about $7,410 a month
Monthly rent: $6,000
DSCR: about 0.81. Better, but still under 1.0.
Three things jump out:
1. The rental license can matter more than the down payment. In this example, the transient license moves the ratio more than putting an extra $216,000 down does. That is why I always tell investors to verify the license before they fall in love with a house.
2. Insurance is a big part of the payment here. At $1,400 a month, insurance is about 16 percent of the total payment. A property with a newer roof, impact windows, a strong wind mitigation report, and good elevation can carry a meaningfully lower premium, and that flows straight into your DSCR. (Our [Florida insurance rates 2026 post] has the questions to ask.)
3. Key West prices push many monthly rentals below 1.0. That doesn't mean you can't buy a monthly rental here with a DSCR loan. It means you may need a larger down payment, a lender with a sub-1.0 program, or a different loan altogether. Knowing that before you shop saves a lot of frustration.
How to prepare for a DSCR loan in the Florida Keys
Talk to a lender who actually does DSCR loans and knows the Keys. Not every lender offers them, and guidelines vary widely.
Get an insurance quote early. Wind and flood estimates belong in your DSCR math before you make an offer, not after.
Verify the rental rights. Confirm whether the property has a transient license, whether it transfers, and whether the HOA restricts rentals.
Ask for real rental history on any property marketed as an income producer. Payout statements beat projections.
Choose your prepayment penalty on purpose. A longer penalty can buy a lower rate, but it only pays off if you plan to hold the property past the penalty period.
Plan your reserves. Have six months of payments set aside after closing, especially for a short-term rental with seasonal income.
The bottom line
A DSCR loan can be one of the most useful tools a Key West investor has, especially if your tax returns don't reflect what you can really afford, or you are building a portfolio. In our market, though, the deal lives or dies on three numbers: the rent the lender will count, the insurance premium, and the purchase price. Run those three before you write an offer.
If you are looking at Key West investment property and want help sorting out which homes pencil as a DSCR purchase, reach out. I can walk you through the rental rights, the insurance picture, and the local lenders who know this market and the DSCR loan product.
Krystal Sheehan · Brokered by eXp Realty · Licensed in Florida
This post is for general information only and is not lending, legal, or tax advice. I am a real estate agent, not a mortgage lender. Loan programs, rates, and guidelines change often and vary by lender. Confirm terms with a licensed mortgage professional.
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