The Debt Service Coverage Ratio (DSCR) is the key metric lenders use to determine if a property generates enough rental income to cover its mortgage payments.
It’s the foundation of how DSCR loans are approved — and it focuses entirely on property cash flow, not personal income.
🧮 The DSCR Formula
The basic formula is simple:
DSCR = Gross Monthly Rent ÷ Total Monthly Debt PaymentGross Monthly Rent = The income the property generates (actual or market rent)
Total Monthly Debt Payment = Principal, interest, taxes, insurance, and HOA (if applicable)
📊 Example Calculation
Let’s look at a real-world scenario:
Item | Amount |
Monthly Rent | $2,500 |
Principal & Interest | $1,600 |
Taxes & Insurance | $400 |
HOA Dues | $100 |
Total Monthly Debt | $2,100 |
DSCR = $2,500 ÷ $2,100 = 1.19
This means the property earns 1.19x its monthly debt payments, which usually qualifies for standard DSCR loan programs.
A DSCR of 1.0 or higher means the property is breaking even or profitable. The higher the DSCR, the stronger your approval chances and loan terms.
💡 What DSCR Ratio Do Lenders Look For?
DSCR Range | Meaning | Typical Result |
1.25+ | Strong cash flow | Best rates and highest LTVs |
1.10 – 1.24 | Good | Standard approval |
1.00 – 1.09 | Break-even | May qualify with tighter terms |
Below 1.00 | Negative cash flow | Case-by-case or denied |
⚙️ Variations by Property Type
Lenders may adjust how income is calculated depending on property type:
Long-Term Rentals: Based on lease agreement or appraiser’s market rent.
Short-Term Rentals (Airbnb/VRBO): Based on market averages (AirDNA, comps, or historical data).
Multifamily (2–4 units): Each unit’s rent contributes to total income.
🧠 Pro Tips to Improve Your DSCR
Increase rent or add amenities to boost gross income.
Lower monthly expenses by shopping for better insurance or refinancing high-rate debt.
Consider an interest-only DSCR loan to temporarily reduce monthly payments.
Keep vacancy rates low with long-term tenants or strong short-term occupancy.
Even a small rent increase — or a slightly lower rate — can push your DSCR above 1.25, unlocking better terms and higher leverage.