DSCR is one of the most important metrics in rental property lending. Whether you’re applying for a DSCR loan, a portfolio loan, or a rental refinance, lenders use this ratio to measure whether the property can support its own debt. Understanding DSCR allows investors to analyze deals with confidence and avoid unexpected denials.
What Is DSCR?
DSCR stands for Debt Service Coverage Ratio.
It measures the relationship between rental income and the total mortgage payment—principal, interest, taxes, insurance, and HOA if applicable.
Formula:
DSCR = Rent ÷ Mortgage Payment
Why Lenders Use DSCR
Lenders want to know one thing—can the property pay for itself?
A high DSCR means:
- Lower risk
- Stronger cash flow
- Higher probability of on-time payments
Studies show DSCR is one of the best predictors of loan performance.
What DSCR Do You Need to Qualify?
Typical thresholds:
- 1.00–1.10: Minimum qualification
- 1.15+: Better pricing and smoother approval
- 1.25–1.40: Best rates and terms
The higher the DSCR, the safer the deal.
Factors That Impact DSCR
Your DSCR can go up or down depending on:
- Rent amount
- Interest rate
- Taxes
- Insurance
- HOA dues
- Loan amount
Small changes in rent or expenses can shift DSCR significantly.
How to Improve Your DSCR
1. Raise Rent
Even a small increase improves DSCR instantly.
2. Reduce Insurance Costs
Shopping insurance lowers the mortgage payment.
3. Buy Down the Rate
Lower interest = higher DSCR.
4. Increase Down Payment
Less borrowed money reduces the payment.
5. Choose a Different Strategy
Mid-term rentals often produce higher income.
DSCR Tips for New Investors
- Run DSCR calculations before submitting offers.
- Don’t assume rents; verify with local data.
- Check taxes and insurance—these often ruin your DSCR.
- Always budget based on conservative numbers.
Final Thoughts
DSCR isn’t complicated—it’s a simple ratio that determines whether a property cash-flows enough to qualify for financing. When you understand how DSCR works and how to strengthen it, you gain control over your deals, your approvals, and your long-term strategy.
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Email: annie@insightflending.com