DSCR: The Number That Decides Whether Your Deal Gets Financed

Buyers obsess over interest rates. Lenders obsess over one question: does the property earn enough to pay us back with room to spare? That question has a number — the debt service coverage ratio — and it decides your loan size more often than your down payment does.

The math

DSCR = net operating income ÷ annual debt payments. A property with $60,000 of NOI carrying a mortgage that costs $48,000 a year has a DSCR of 1.25x — it earns $1.25 for every $1.00 of debt service. Most commercial and DSCR-rental lenders want at least 1.20-1.25x; riskier property types push the floor higher.

Why it caps your loan

Flip the formula: maximum annual debt service = NOI ÷ 1.25. The lender sizes your mortgage from the building's income, not your offer price. If the NOI supports a $480,000 loan and you offered a price needing $560,000 of debt, the difference comes from your pocket — which is why deals 'work at asking' on a spreadsheet and then die in underwriting. Rate hikes tighten this further: the same NOI supports less debt at 7.5% than at 6.5%, which is exactly how rising rates push commercial prices down.

Using it like an investor

• Underwrite at 1.25x even if a lender will stretch — the margin is your bad-year cushion, not the bank's.
• Stress test: re-run DSCR with 10% lower income and 1% higher rates before you commit.
• DSCR rental loans qualify the property, not your W-2 — the standard tool for investors and LLCs, priced a little above conventional.
• A DSCR under 1.0 means the property loses money on financing day. That's a bet on rent growth, and you should price it as one.

Amateurs ask what a property costs. Underwriters ask what it earns. DSCR is the bridge between those questions — and the loan lives or dies on it.