What is DSCR (debt service coverage ratio)?
Definition
The debt service coverage ratio (DSCR) is a property's net operating income divided by its annual debt service (mortgage payments). A DSCR above 1.0 means the property's income covers its loan; below 1.0 means it doesn't, from operations alone.
Formula
DSCR = NOI ÷ Annual debt service
Example
Worked example
NOI of $24,000 and annual mortgage payments of $19,000 → DSCR = 24,000 ÷ 19,000 = 1.26. (Example figures.)
How ReSharpe calculates this
ReSharpe reports DSCR alongside cap rate and cash-on-cash on your financing terms, so you can see at a glance whether a deal would clear a typical DSCR-loan threshold before you write the offer. See instant deal analysis.
Related: NOI · Cap rate · Cash-on-cash
Frequently asked questions
- What DSCR do lenders want?
- Many DSCR (investor) loans look for a ratio of 1.20–1.25 or higher, meaning the property's NOI covers its debt by 120–125%. Some programs allow ratios near 1.0; below 1.0 the property doesn't cover its own debt from operations.
- What is a DSCR loan?
- A loan underwritten on the property's cash flow (its DSCR) rather than the borrower's personal income — common for investors. The higher the DSCR, the lower the lender's risk.
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