A debt service coverage ratio (DSCR) loan is one that qualifies borrowers based on the property income rather than the borrower's personal income.
DSCR Calculator
Calculate your Debt Service Coverage Ratio (DSCR) by comparing your monthly rental income to your total monthly debt service. A DSCR of 1.0 or higher indicates positive cash flow.
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DSCR Interpretation
Enter your values above to see your DSCR analysis.
DSCR Guidelines
- DSCR ≥ 1.25: Prime Tier – Strong cash flow, lowest risk, qualifies for the best DSCR rates
- DSCR 1.00 - 1.24: Preferred Tier – Solid coverage, moderate risk, earns competitive rates
- DSCR 0.75 - 0.99: Limited Tier – Tight cash flow, higher risk, rates priced accordingly
- DSCR ≤ 0.75: Caution Tier – Insufficient cash flow; lenders offset risk with higher rates—consider lowering the loan amount to improve DSCR
Quick Pro Tip!
Anytime the DSCR is >1.25 the loan terms improve, so consider increasing rents and/or decreasing your loan amount to increase your DSCR for better financing.
About DSCR Loans
DSCR loans are frequently used by real estate investors to finance rental properties. The debt service coverage ratio is the ratio of an investment's net operating income to its total debt service. It is a way of determining whether the property generates enough income to support its current debt obligations.
This loan is best used to avoid having to submit income documents and having to be qualified with personal income. Instead, the property's rental income determines your qualification.
Benefits of DSCR Loans
- No Personal Income Documentation: Qualify based on property income, not personal income
- Faster Processing: Streamlined approval process without extensive income verification
- Portfolio Growth: Easier to finance multiple investment properties
- Flexible Terms: Better loan terms when DSCR exceeds 1.25
DSCR Requirements
- Minimum DSCR: Typically 1.0 or higher (property breaks even or profits)
- Optimal DSCR: 1.25+ for best rates and terms
- Down Payment: Usually 20-25% depending on property type and DSCR
- Reserves: 6-12 months of debt service in reserves
