NOI divided by annual loan payments; lenders use it to judge whether income covers the debt.
A DSCR of 1.25 means the property earns 25% more than its loan payments. Most investment-property lenders want at least 1.20–1.25 before they will fund a deal.
Formula: DSCR = NOI ÷ Annual Debt Service
Example: $52,000 NOI ÷ $41,000 annual debt service = 1.27 DSCR.
FAQ
What is DSCR in simple terms?
A DSCR of 1.25 means the property earns 25% more than its loan payments. Most investment-property lenders want at least 1.20–1.25 before they will fund a deal.
How is it calculated?
DSCR = NOI ÷ Annual Debt Service. Example: $52,000 NOI ÷ $41,000 annual debt service = 1.27 DSCR.