February 12, 2025•2 min read
Debt Service Coverage Ratio (DSCR): Will the Bank Approve Your Loan?
RentalIntel Team
Real Estate Investment Experts
If you're financing a rental, your bank cares more about DSCR than your credit score.
Why? Because DSCR tells them if your property can pay for itself.
The Formula
Where:
- NOI = Rental Income - Operating Expenses
- Debt Payments = Monthly Mortgage x 12
Real-Life Example
Property Financials
| Category | Amount (Annual) |
|---|---|
| Rental Income | $30,000 |
| Operating Expenses | -$10,000 |
| NOI | $20,000 |
| Annual Mortgage Payment | -$15,000 |
DSCR Calculation
What Does a DSCR of 1.33 Mean?
- Above 1.25? ✅ Lenders love it
- Below 1.0? ❌ Risky—your property can’t cover debt
- Around 1.0? ⚠️ Barely breaking even
When DSCR Matters (and When It Doesn’t)
✅ Used by lenders to approve loans
✅ Shows if your rental covers its mortgage
❌ Doesn’t factor in taxes or personal income
❌ Might be misleading if expenses are underestimated
Pro Tips
- Higher DSCR = Easier loan approval.
- Lenders often require DSCR of 1.25+ for financing.
- Short-term rentals can have lower DSCR but still be profitable.
The Bottom Line
DSCR is critical for financing—know your number before applying.
A higher DSCR makes you a stronger borrower.
What DSCR do your lenders require? Share your insights below!
