What DSCR means
Debt service coverage ratio compares eligible rental income with the property’s qualifying debt service or housing expense under the lender’s rules. Rental income may come from an appraisal rent schedule or other permitted rental analysis. The lender determines the applicable calculation.
An illustrative example
If eligible monthly rent is $3,000 and the qualifying monthly housing expense is $2,500, dividing rent by expense gives a ratio of 1.20. That example explains the arithmetic; it is not a lender approval threshold or a return-on-investment calculation.
The property is central, but it is not the only requirement
Many DSCR programs do not use personal income or employment documentation to qualify. Borrower credit, down payment or equity, reserves, appraisal, property eligibility, and other requirements still apply. Minimum ratios and rules vary.
Review the investment and the loan separately
A qualifying ratio does not establish that the property will be profitable. Consider vacancies, repairs, management costs, taxes, insurance, financing costs, and any applicable prepayment penalty. DSCR programs described here are for eligible investment properties, not a primary residence.