The One Number That Can Make or Break Your Loan

What is DSCR—and Why Do I Need It?

Let’s talk about a four-letter acronym that lenders love and underwriters obsess over:

DSCR – Debt Service Coverage Ratio.

It’s the financial gut check that answers one critical question:

Can this property pay its own mortgage?

What Is It?

In real estate, DSCR measures a property’s cash flow compared to the debt it’s expected to repay. It's not about you—it's about whether the deal can stand on its own two financial feet.

The Formula:

• NOI = Net Operating Income (gross rent minus expenses excluding debt, taxes, and insurance)

• Total Debt Service = Principal + Interest (no taxes, no insurance)

What Do the Numbers Mean?

• DSCR < 1.0 – 🚨 You’re losing money. The property doesn’t generate enough income to cover the loan.

• DSCR = 1.0 – Just enough to cover the mortgage. Barely. One maintenance call and you’re in the red.

• DSCR = 1.2 – Solid. You’ve got a little cushion, but things still need to go mostly right.

• DSCR > 1.2 – 💰 Now we’re talking. Lenders like you, cash flow is comfortable, and you sleep better at night.

Why Does This Matter?

Because banks don’t lend on vibes. They lend on math.

A good DSCR gets you better rates, better terms, and faster approvals—especially for rental properties and commercial deals.

So whether you're analyzing a new deal or refinancing an existing one, know your DSCR. It’s a small number with a huge impact.