Debt service coverage ratio (DSCR)
The debt service coverage ratio (DSCR) is a property’s income divided by its loan payments. A DSCR of 1.25 means income covers the payment 1.25 times. DSCR rental loans are underwritten on it, not on personal income.
How DSCR works
DSCR = property income ÷ debt service. For commercial property, income is usually net operating income and debt service is the annual principal and interest. For DSCR rental loans on 1- to 4-unit properties, many lenders use a simpler monthly version: gross rent divided by PITIA (principal, interest, taxes, insurance and any association dues). Lenders define income and payment differently, so always check which formula a program uses.
- Above 1.0: the property’s income covers the payment.
- Exactly 1.0: it breaks even.
- Below 1.0: the borrower must cover a shortfall from elsewhere.
Rent is usually taken from an existing lease or an appraiser’s market rent estimate, whichever the program allows.
Why it matters to a private lender
DSCR loans are business-purpose loans to investors that are underwritten on the property, not on the borrower’s tax returns, so the ratio carries most of the credit decision along with LTV and credit score. Loan buyers price DSCR loans heavily on it: higher coverage usually means more buyers and better pricing, and loans below 1.0 fit fewer programs.
Example
Hypothetical. A rental earns $2,500 a month. Principal and interest are $1,450, taxes $250, insurance $100 and HOA dues $0, so PITIA is $1,800. DSCR is $2,500 ÷ $1,800 = 1.39. If the rate rises and PITIA reaches $2,100, DSCR falls to 1.19.
Read DSCR loans explained for how programs set limits.
Where Lender Capital fits
Lender Capital places first-lien, business-purpose real estate loans with capital partners. You apply once, then submit each loan with the full file. We send it only to capital partners whose criteria it fits, one partner funds the whole loan at closing and it is assigned to them. You keep your points (less the placement fee), earn the spread above the partner’s rate and service the loan. You pay a placement fee only when a loan funds.
Lender Capital is a business-to-business platform. This page is general information, not legal, tax or securities advice. Terms of warehouse lines and other funding sources vary by provider; confirm them with each provider and your counsel.