DSCR (Debt Service Coverage Ratio)

DSCR measures whether a property pays for its own debt. You take the property’s income and divide it by its full debt service, the PITIA (principal, interest, taxes, insurance, and any association dues). A result of 1.0 means income exactly covers the payment, and many lenders want around 1.25 so there is a cushion.

The appeal of a DSCR loan is that it qualifies on the property’s numbers rather than your personal income, which suits investors without W-2 documentation. The catch is that the ratio is fragile to occupancy: a few empty months can pull a comfortable 1.25 down toward breakeven. The thresholds here are illustrative and vary by lender and program.