What is DSCR, and why do lenders care?
DSCR — debt service coverage ratio — measures whether a property’s income covers its loan payments. It’s net operating income divided by annual debt service. A DSCR of 1.0 means income exactly covers the payment; lenders typically require 1.20–1.30 or higher, so the property produces a cushion above its mortgage.
What the number means
- DSCR = 1.0 — income exactly covers the loan payment. No cushion.
- DSCR below 1.0 — the property doesn’t generate enough to cover its own debt. Lenders avoid this.
- DSCR above 1.0 — income exceeds the payment, leaving a safety margin. A 1.40 means income is 40% more than the mortgage requires.
| Net operating income | $140,000 |
| Annual debt service | $100,000 |
| DSCR ( $140,000 ÷ $100,000 ) | 1.40x |
Why lenders care so much
DSCR is a lender’s primary safety test: can the property pay its own mortgage from operations, without the borrower reaching into their pocket? Most commercial lenders require a minimum around 1.20–1.30x, and they set it higher for riskier assets or markets.
It often decides your loan size
DSCR doesn’t just pass or fail a deal — it frequently caps it. A lender works backward: the maximum annual debt service is NOI ÷ the required DSCR, and the loan amount follows from that at the going rate and amortization. A higher required DSCR means a smaller loan. To improve your DSCR, you either raise NOI or lower debt service (less leverage, longer amortization, or a lower rate).