DSCR
Debt Service Coverage Ratio — measures a property's ability to cover its debt payments.
Definition
DSCR compares a property's net operating income to its total debt service (mortgage payments including principal, interest, taxes, and insurance). It tells you how comfortably a property can cover its debt obligations.
DSCR = Net Operating Income ÷ Total Debt Service
Example: $24,000 NOI ÷ $20,000 debt service = 1.20 DSCR
What Lenders Want
- 1.0 — Break-even; property covers debt but no margin for error
- 1.25 — Most common minimum for DSCR loans
- 1.5+ — Strong coverage, may get better loan terms
DSCR Loans
DSCR loans are popular with investors because they qualify based on the property's income rather than your personal income. This makes it easier to scale a portfolio without hitting traditional debt-to-income limits.
How to Improve DSCR
- Increase rent or reduce vacancy
- Lower operating expenses
- Make a larger down payment
- Get a lower interest rate or longer loan term