The Debt Service Coverage Ratio (DSCR) measures how well a property's net operating income covers its debt payments. It is calculated as Net Operating Income ÷ Total Debt Service. A DSCR of 1.0 means income exactly covers the debt; most lenders require a DSCR of 1.20–1.25 or higher to approve a DSCR loan.
How DSCR is calculated
DSCR = Net Operating Income (NOI) ÷ Total Debt Service. NOI is your gross rental income minus operating expenses (taxes, insurance, management, maintenance) but before mortgage payments. Total Debt Service is the annual principal and interest on the loan. A DSCR of 1.25 means the property generates 25% more income than it needs to cover the debt.
What DSCR do lenders want?
DSCR loan programs typically require a minimum ratio between 1.0 and 1.25. A higher DSCR signals lower risk and can unlock better rates. Some lenders allow ratios below 1.0 with compensating factors such as a larger down payment or cash reserves.
Verify the income behind your DSCR
Accurate DSCR starts with accurate income. Underwriters reconcile stated rents and expenses against actual bank statement deposits. Converting a borrower's PDF statements to a clean spreadsheet makes it fast to total real deposits and recurring expenses before you run the ratio.