Debt Service Coverage Ratio
Also called: DSCR, debt service cover, DSCR loan
DSCR compares net operating income to annual debt payments, and commercial lenders typically require 1.20–1.25 as a minimum. Below 1.0 the property doesn't cover its own mortgage. DSCR loans for residential investors underwrite the property's income rather than the borrower's, which is why they're the standard route for buyers who already own several rentals.
Formula
DSCR = Net operating income ÷ Annual debt service