The Debt Service Coverage Ratio tells you, and your lender, how many times over a property's income covers its mortgage payment. It's a standard requirement for investment-property financing.
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DSCR compares a property's net operating income to its annual mortgage payment. A ratio of 1.0 means income exactly covers the loan with nothing left over; most lenders want a cushion above that, often 1.2 to 1.25 or higher, before approving an investment-property loan.
Net operating income is annual rental income minus annual operating expenses, before the mortgage. Annual debt service is your yearly principal-and-interest total for the loan you're evaluating.
| Annual rental income | $24,000 |
| Annual operating expenses | $9,600 |
| Net operating income | $14,400 |
| Annual debt service | $12,135.71 |
| DSCR | 1.19 |
At 1.19, income covers the mortgage with about 19% to spare, below the 1.20-1.25 threshold many DSCR-loan programs require, so this deal would likely need a larger down payment or higher rent to qualify.
Debt service coverage ratio (DSCR) measures how many times a property's net operating income covers its loan payments. A DSCR of 1.0 means income exactly equals debt service with nothing to spare. Most lenders want to see at least 1.20 to 1.25, meaning income is 20% to 25% higher than the payment.
A higher DSCR means more cushion if rents dip or expenses rise, and it often unlocks better loan terms. Below 1.0 the property does not generate enough to cover its own financing, which is a warning sign for both you and any lender.