What is DSCR?
The debt-service coverage ratio (DSCR) compares a property's net operating income to its annual mortgage payments. It tells a lender whether the rental income alone covers the debt.
DSCR loans have become popular with investors because they qualify the property, not your personal income — so W-2 pay stubs and DTI matter less than whether the deal covers its own payments.
Formula
DSCR = Net Operating Income ÷ Annual Debt Service. NOI = annual rent − operating expenses; debt service = 12 × monthly principal & interest.
How to read it
- DSCR of 1.0 means income exactly covers the debt; below 1.0 the property doesn't cover its own mortgage.
- Most DSCR lenders want 1.20–1.25 or higher — a cushion above break-even.
- Raising the down payment (smaller loan) or the rent improves DSCR.
Frequently asked questions
- What DSCR do lenders require?
- Most DSCR lenders look for 1.20–1.25 minimum, though some go down to 1.0 (or below, with higher rates/reserves). The higher your DSCR, the better your loan terms.
- Do DSCR loans check my personal income?
- Generally no — that's the appeal. The loan qualifies on the property's cash flow rather than your W-2 income or debt-to-income ratio, which suits self-employed and portfolio investors.