What is DSCR?
DSCR (Debt Service Coverage Ratio) is a key metric lenders use to evaluate investment property loans.
What Does DSCR Measure?
DSCR measures whether a property generates enough rental income to cover its debt obligations. It's calculated by dividing Net Operating Income (NOI) by total debt service.
The DSCR Formula
DSCR = Net Operating Income รท Total Debt Service
Net Operating Income (NOI)
NOI is your property's annual rental income minus operating expenses:
- Gross rental income
- Minus: Vacancy allowance
- Minus: Property taxes
- Minus: Insurance
- Minus: Property management
- Minus: Maintenance and repairs
Total Debt Service
This is your annual mortgage payment (principal + interest).
What DSCR Ratio Do You Need?
- 1.50+ (Strong) - Best rates and terms available
- 1.25-1.49 (Good) - Qualifies for most DSCR programs
- 1.10-1.24 (Acceptable) - May qualify with stronger reserves
- 1.00-1.09 (Tight) - Limited options, higher rates
- Below 1.00 (Poor) - Does not qualify for most DSCR programs
Why DSCR Matters
DSCR programs are commonly reviewed by real estate investors because:
- Programs generally focus on property cash flow, reserves, credit profile, and lender guidelines
- Business-purpose investment property scenarios may be reviewed without owner-occupied consumer-loan underwriting
- Can finance multiple investment properties
- Personal debt-to-income may be treated differently than in owner-occupied mortgage programs
- Available for various property types
Calculate Your DSCR
Use the free DSCR calculator to estimate your Debt Service Coverage Ratio: