Debt Service Coverage Ratio = Annual NOI ÷ Annual Debt Service. Lenders require ≥ 1.25.
Insurance, taxes, maintenance, mgmt
Effective Monthly Rent
$2,850.00
Monthly NOI
$2,350.00
Annual NOI
$28,200
Monthly P&I Payment
$1,663.26
Annual Debt Service
$19,959
DSCR
1.413
Risk Assessment
Max Loan for DSCR = 1.25
$282,578
at 7% for 30 years
The Debt Service Coverage Ratio (DSCR) measures a property's ability to cover its debt obligations from its net operating income. A DSCR of 1.0 means the property generates exactly enough income to pay the mortgage. Most lenders require a minimum DSCR of 1.25, meaning income must exceed debt payments by at least 25%.
DSCR loans (also called investor cash flow loans) qualify borrowers based on the property's rental income rather than the borrower's personal income. This makes them popular with real estate investors who have multiple properties or irregular personal income. Rates are typically 0.5–1.5% higher than conventional loans.
You can improve DSCR by increasing rents, reducing vacancy, cutting operating expenses, making a larger down payment (reducing loan amount), or negotiating a lower interest rate. A larger down payment is often the most direct lever available to investors.