What is DSCR (Debt Service Coverage Ratio)?

DSCR is a rental property's Net Operating Income (NOI) divided by its Annual Debt Service (principal + interest). A DSCR of 1.00 means the property's NOI exactly covers the mortgage; 1.20 means NOI is 20% higher than the debt service. Most DSCR lenders in the US require a minimum of 1.20 to 1.25.

How do you calculate DSCR?

DSCR = Annual Net Operating Income ÷ Annual Debt Service. NOI = Gross Rent × (1 − Vacancy %) − Operating Expenses (property tax, insurance, HOA, maintenance, management). Annual Debt Service = Monthly P&I × 12. Example: NOI of $22,800 and annual P&I of $19,000 → DSCR = 1.20.

What is a good DSCR ratio for a rental property?

Most DSCR lenders offer their best pricing at 1.25+, standard pricing at 1.20+, and "no-ratio" or lower-LTV programs down to 1.00 or below. Above 1.35 you're comfortably qualifying almost anywhere; below 1.00 the property doesn't cash-flow the debt on paper and you'll usually need more down.

How is a DSCR loan different from a conventional mortgage?

Conventional loans qualify the borrower using personal income and debt-to-income (DTI). DSCR loans qualify the property using its own rental income — no W-2s or tax returns. In exchange DSCR loans typically price 100–200 bps higher, cap LTV at 75–80%, and include prepayment penalties.

Do DSCR lenders use market rent or actual rent?

For a new purchase most lenders use the lower of market rent (per a 1007 rent schedule) and the signed lease. On a refinance they'll use the in-place rent if the unit is leased. Short-term rental income is accepted by some lenders using a 12-month AirDNA or booking history at 75–90% of gross.

Can I include short-term rental income in DSCR?

Yes, with STR-friendly DSCR lenders. They typically use trailing 12 months of Airbnb/VRBO gross revenue, discount it 10–25% for vacancy and platform fees, then treat the result as gross rent in the DSCR formula. Not all DSCR lenders allow STR — confirm before applying.

What LTV can I get with a DSCR loan?

Most DSCR programs max out at 75–80% LTV on a purchase and 70–75% on a cash-out refinance. Better DSCR ratios (1.25+) and higher credit scores (720+) unlock the top LTV tier and best rates.

How can I improve my DSCR?

Three levers: increase NOI (raise rent, cut opex), reduce debt service (bigger down payment, longer term, or an interest-only period), or change the deal (target higher-cap-rate submarkets). Interest-only lowers the annual P&I to just the interest, which is why many DSCR loans use a 10-year IO period at qualification.

DSCR loans · Guide

DSCR Loan Calculator Guide: How to Calculate DSCR (2026)

DSCR loans have quietly become the default financing tool for US real estate investors buying rentals in an LLC. This guide covers the DSCR formula, a full worked example, typical lender thresholds, and the five biggest differences vs a conventional mortgage.

What is DSCR?

DSCR — Debt Service Coverage Ratio — is a single number that tells a lender whether a rental property produces enough net income to cover its own mortgage. Unlike a conventional mortgage, a DSCR loan qualifies the property, not the borrower. No W-2s, no tax returns, no personal DTI check.

The formula

DSCR = Annual Net Operating Income (NOI) ÷ Annual Debt Service

Worked example

Take a $350,000 single-family rental in Tampa:

Gross rent: $2,950/mo → $35,400/yr
Vacancy 5% → effective gross rent $33,630
Property tax $4,200, insurance $1,600 → $5,800
Maintenance (5% of rent) + management (8% of rent) → $4,602
NOI = $33,630 − $5,800 − $4,602 = $23,228

Now the financing side: 25% down, 30-year loan at 7.25%.

Loan amount: $262,500
Monthly P&I: ~$1,791
Annual Debt Service: ~$21,494
DSCR = $23,228 ÷ $21,494 = 1.08×

1.08× clears a no-ratio DSCR program but not the standard 1.20× tier. Two ways to fix it: put 30% down (drops annual debt service to about $20,050 and DSCR to ~1.16×) or switch to a 10-year interest-only period at 7.25% (annual debt service becomes $19,031, DSCR = 1.22×).

Typical DSCR lender thresholds

1.00× or below — "no-ratio" programs. Available up to about 70% LTV at premium pricing. Fine for BRRRR refis where the ARV is strong.
1.20× — the standard bar at most non-QM DSCR lenders.
1.25× — the best-pricing tier at most lenders. Buys you 25–50 bps off the rate and often unlocks 80% LTV.
1.35×+ — qualifies almost anywhere; useful for portfolio scaling.

DSCR loans vs conventional mortgages

Qualification. Conventional = personal income, DTI, and job history. DSCR = property income only.
Entity. DSCR loans close in an LLC. Conventional Fannie/Freddie loans must close in a person's name.
Rate. DSCR runs 100–200 bps higher than a comparable conventional rate.
LTV. DSCR maxes at 75–80% on purchases and 70–75% on cash-out. Conv. investment loans allow 85% purchase / 75% cash-out.
Prepayment penalty. Most DSCR loans include a 3–5 year prepayment penalty. Conventional loans do not.

How to improve a marginal DSCR

Raise rent to market (order a 1007 rent schedule if you're under-market).
Trim controllable opex — self-manage, shop insurance, appeal the tax bill.
Increase the down payment to shrink annual debt service.
Choose a 10-year interest-only period at qualification.
Extend the amortization to 40 years (some non-QM DSCR programs allow this).

Run these numbers on your own deal

Plug your rent, expenses, and financing into the free DSCR calculator to see whether you qualify at 1.00, 1.20, or 1.25 — and the max loan each threshold supports.

Open the DSCR calculator

Frequently asked questions

What is DSCR (Debt Service Coverage Ratio)?: DSCR is a rental property's Net Operating Income (NOI) divided by its Annual Debt Service (principal + interest). A DSCR of 1.00 means the property's NOI exactly covers the mortgage; 1.20 means NOI is 20% higher than the debt service. Most DSCR lenders in the US require a minimum of 1.20 to 1.25.
How do you calculate DSCR?: DSCR = Annual Net Operating Income ÷ Annual Debt Service. NOI = Gross Rent × (1 − Vacancy %) − Operating Expenses (property tax, insurance, HOA, maintenance, management). Annual Debt Service = Monthly P&I × 12. Example: NOI of $22,800 and annual P&I of $19,000 → DSCR = 1.20.
What is a good DSCR ratio for a rental property?: Most DSCR lenders offer their best pricing at 1.25+, standard pricing at 1.20+, and "no-ratio" or lower-LTV programs down to 1.00 or below. Above 1.35 you're comfortably qualifying almost anywhere; below 1.00 the property doesn't cash-flow the debt on paper and you'll usually need more down.
How is a DSCR loan different from a conventional mortgage?: Conventional loans qualify the borrower using personal income and debt-to-income (DTI). DSCR loans qualify the property using its own rental income — no W-2s or tax returns. In exchange DSCR loans typically price 100–200 bps higher, cap LTV at 75–80%, and include prepayment penalties.
Do DSCR lenders use market rent or actual rent?: For a new purchase most lenders use the lower of market rent (per a 1007 rent schedule) and the signed lease. On a refinance they'll use the in-place rent if the unit is leased. Short-term rental income is accepted by some lenders using a 12-month AirDNA or booking history at 75–90% of gross.
Can I include short-term rental income in DSCR?: Yes, with STR-friendly DSCR lenders. They typically use trailing 12 months of Airbnb/VRBO gross revenue, discount it 10–25% for vacancy and platform fees, then treat the result as gross rent in the DSCR formula. Not all DSCR lenders allow STR — confirm before applying.
What LTV can I get with a DSCR loan?: Most DSCR programs max out at 75–80% LTV on a purchase and 70–75% on a cash-out refinance. Better DSCR ratios (1.25+) and higher credit scores (720+) unlock the top LTV tier and best rates.
How can I improve my DSCR?: Three levers: increase NOI (raise rent, cut opex), reduce debt service (bigger down payment, longer term, or an interest-only period), or change the deal (target higher-cap-rate submarkets). Interest-only lowers the annual P&I to just the interest, which is why many DSCR loans use a 10-year IO period at qualification.

Educational content only — not lending, tax, or legal advice.