What is DSCR?
The debt service coverage ratio (DSCR) measures whether a property's income can cover its debt payments. Lenders use it to size loans and assess risk on income properties.
The formula
DSCR = Annual net operating income / Annual debt service
Annual debt service is the total of all principal and interest payments for the year. A DSCR above 1.0 means income exceeds debt payments; below 1.0 means it falls short.
How to use it
- Enter the annual net operating income.
- Enter the annual debt service.
For example, $80,000 of NOI against $60,000 of debt service gives a DSCR of 1.33.
What lenders look for
Required DSCR varies by lender, product, asset class, and transaction. For product-specific examples, Fannie Mae's Conventional Properties Term Sheet lists a 1.25x minimum, while its Credit Facility Term Sheet generally starts at 1.25x and says some Multifamily Affordable Housing properties may start at 1.20x. Verify the requirement in the applicable lender term sheet. A calculated ratio above 1.0 means income exceeds modeled debt service; it does not guarantee loan approval.