DSCR (Debt-Service Coverage Ratio)

What is DSCR?

DSCR stands for Debt-Service Coverage Ratio. It is the cornerstone metric of investor-property lending. The formula is simple:

DSCR = Monthly Gross Rents ÷ PITIA

A DSCR of 1.00 means the property’s rent exactly covers its mortgage payment, property taxes, hazard insurance, and any HOA/association dues. A DSCR of 1.25 means rents cover 125% of PITIA — there is positive cash flow before any vacancy or maintenance reserves. A DSCR below 1.00 means the property is “negatively levered” — out-of-pocket money is required each month to cover debt service.

For interest-only loans, the calculation may use ITIA (no principal component) since the monthly payment doesn’t include amortization during the IO period. The treatment of taxes, insurance, and HOA dues is identical to a fully-amortizing calculation.

How DSCR applies at Total Quality Lending

Total Quality Lending requires DSCR of at least 1.00 for max-LTV pricing on DSCR loans — up to 80% LTV at the top tier. Properties with DSCR below 1.00 can still qualify under TQL’s “no-DSCR-required” tier, but with lower LTV caps. The ratio is calculated using the 1007 rent schedule from the appraisal or the actual lease in place — whichever is more conservative. On multi-unit DSCR loans (5–9 units), DSCR is calculated on the property’s combined unit rents.