DSCR loans are popular among real estate investors because they focus on a property's ability to service debt rather than the borrower's W-2 income. Here's how lenders evaluate DSCR and how to improve yours.
What Is DSCR?
Debt Service Coverage Ratio = Net Operating Income (NOI) ÷ Annual Debt Service. Lenders often look for DSCR ≥ 1.20–1.25 for single-family rentals (SFRs), higher for small multifamily.
Underwriting Factors
- Gross rents, vacancy assumptions, and other income
- Operating expenses: taxes, insurance, management, maintenance, reserves
- Debt terms: interest rate, amortization, DSCR spread requirements
How to Improve DSCR
- Increase NOI: raise rents ethically, reduce expenses, add ancillary income (parking, storage).
- Lower debt service: buy down rate, extend amortization, increase down payment.
- Operate efficiently: professional management and preventive maintenance.
Pros and Cons
- Pros: Less emphasis on personal income, scalable for portfolios, faster underwriting.
- Cons: Higher rates/fees, prepayment penalties, tighter DSCR covenants in downturns.
Explore our Real Estate tools and analyze cash flow scenarios with Vine's Wealth Tracking.
Model Your Rental Portfolio
Stress test rents, rates, and expenses with Vine to keep DSCR healthy across properties.
Build Your Plan