What is DSCR?

The debt service coverage ratio in one line

Divide the income by the debt service, which is the loan payments due in that same period. At a DSCR of 1.00, the income covers the loan payment exactly once and leaves nothing over. With a DSCR of 1.25, the income is 25% higher than the payment requires. With a DSCR of 0.90, the income covers only 90% of it.

Lenders favor the ratio because it shows how much room a property has before vacancy, a repair or a tax increase makes the owner cover the loan with other money.

How DSCR is measured on a rental home

With a DSCR loan on a single-family rental or small multifamily building, most lenders divide gross monthly rent by PITIA (property tax, insurance, HOA dues, principal and interest). That version of the ratio leaves out any vacancy allowance and any repair budget.

Say the rent is $1,800 a month. A loan of $200,000 at 7.5% spread over 30 years has monthly principal and interest of $1,398. With $250 of tax and $150 of insurance added, the PITIA comes to $1,798. Dividing $1,800 by $1,798 gives a DSCR that rounds to 1.00.

Our DSCR loan calculator applies the same calculation to your own figures through two steps.

How DSCR is measured on a commercial property

Banks and commercial lenders typically begin with NOI (net operating income), which is a full year of rent minus vacancy, management, repairs, tax and insurance. Next they divide that figure by the year's principal and interest. Since costs come off the top, the same building comes out with a lower DSCR under this method than it does under the rent-over-PITIA method.

Loan offers quote both versions, so check first which income figure any stated minimum relies on. The DSCR calculation page walks through both methods side by side.

Which DSCR numbers lenders look for

For rental loans, published minimums range from no minimum at all to 1.25. The DSCR lender table shows Lima One Capital at 1.00 and Kiavi at 1.10 for prequalification. Easy Street Capital lists no minimum if the rest of the deal works out. Each level and what it changes are covered on the good DSCR page.