Definition
DSCR is the key metric lenders use to assess whether a property generates enough income to service its debt. A DSCR of 1.0 means income exactly covers debt payments. Most lenders require DSCR of 1.20-1.25 minimum, meaning NOI exceeds debt service by 20-25%. Higher DSCR provides a larger cushion against income decline or expense increases.
functions Formula
DSCR = NOI / Annual Debt Service
lightbulb Example
NOI is $120K and annual mortgage payments (P&I) are $96K. DSCR = $120K/$96K = 1.25. This meets the typical 1.25 minimum lender requirement, meaning there is a 25% income cushion above debt obligations.
verified_user Key Points
- Key lending qualification metric
- Most lenders require 1.20-1.25 minimum
- Higher DSCR = more comfortable debt coverage
- Below 1.0 means property cannot cover its mortgage