Understanding DSCR helps you assess whether rental income can cover loan payments and qualify for real estate financing.
Debt-Service Coverage Ratio (DSCR) measures your ability to cover debt payments with operating income. Formula: DSCR = Net Operating Income ÷ Total Debt Service. For rental properties, it's net rental income divided by annual loan payments. A ratio of 1.0 means income exactly covers payments; 1.25+ is considered healthy. Most lenders require 1.20-1.25 minimum for real estate loans. Higher ratios mean lower risk and better loan terms.
DSCR = Net Operating Income ÷ Total Debt Service
For rental properties, this becomes:
DSCR = Net Rental Income ÷ Annual Debt Payments
Use our DSCR calculator to calculate your ratio. Learn more about DSCR loans explained.
Rental Property: Single-family rental
Annual Gross Rent: $3,000/month × 12 = $36,000
Annual Expenses:
Net Rental Income: $36,000 - $9,480 = $26,520
Annual Debt Payments: $20,000
DSCR = $26,520 ÷ $20,000 = 1.33
✓ Meets 1.25 requirement - Loan approved!
Strong cash flow. You'll get the best rates and terms. Property generates significant income beyond debt payments.
Meets most lender requirements. Good cash flow with comfortable margin. Competitive rates available.
Meets minimum requirements but tight. May need higher down payment or pay slightly higher rates.
Rental income doesn't cover payments. Loan will be denied. Need to increase rent, reduce purchase price, or increase down payment.
Lenders use DSCR to assess loan risk and determine terms:
Raise rents (if market allows), reduce vacancy, or add income streams (parking, storage, etc.). Higher income improves DSCR directly.
Negotiate lower property taxes, shop for better insurance, or reduce maintenance costs. Lower expenses increase net rental income.
Larger down payment means smaller loan amount and lower monthly payments, improving DSCR.
Longer terms or lower interest rates reduce monthly payments, improving DSCR. Learn about real estate lending options.
Most lenders require 1.20-1.25 minimum. A ratio of 1.50+ is considered excellent and gets you the best rates and terms. Below 1.20 means rental income doesn't cover payments, so loans are typically denied.
DSCR measures property income vs property debt payments. Debt-to-income (DTI) measures personal income vs personal debt payments. DSCR is used for investment properties; DTI is used for owner-occupied properties.
Very unlikely. A DSCR below 1.0 means rental income doesn't cover loan payments, which is too risky for lenders. You'll need to improve the property's income or reduce the loan amount (larger down payment).
Existing rental income helps, but lenders can use market rent estimates for new purchases. They'll verify rent comparables in the area to ensure estimates are realistic.
Comprehensive guide to DSCR loans and how they work.
Calculate debt-service coverage ratio for your rental property.
Learn about DSCR loans and qualification requirements.
Explore DSCR loans and other real estate financing options.
Get DSCR loan approval based on property income, not personal income.
Fast approval • Based on property income • Real estate experts