What Is DSCR?

The formula and what it means

DSCR is net operating income divided by annual debt service. At 1.00, income exactly covers the mortgage. At 1.25, NOI could fall 20% and the property would still cover its payments.

Below 1.00, the property cannot pay for itself and the shortfall comes from your other income.

What lenders look for

Requirements vary by lender, program, property type and market conditions, so confirm the current threshold with your lender or broker rather than assuming a number.

Regardless of the minimum you are offered, underwriting to a healthier ratio than the minimum is what protects you at renewal.

How to improve a thin DSCR

There are only a few honest levers, and each has a cost.

• Reduce the loan amount with a larger down payment, lowering your cash-on-cash return.
• Lengthen amortisation, lowering the payment but raising total interest.
• Increase NOI through rent alignment or expense reduction, which takes time and often capital.
• Pay less for the property, which is the cleanest lever and the hardest to negotiate.

Why DSCR breaks first when rates rise

Rate changes hit debt service immediately while NOI moves slowly. A property at 1.25 today can drop below 1.10 on renewal after a meaningful rate increase with no change in operations.

Model the renewal explicitly. If the deal only clears at today's rate, you are underwriting the rate, not the asset.

Frequently asked