📊 How DSCR (Debt-Service Coverage Ratio) Affects Loan Approval
Last Update 7 months ago
Debt-Service Coverage Ratio (DSCR) is one of the key metrics lenders use to evaluate your ability to repay a commercial real estate loan.
Formula:
DSCR = Net Operating Income (NOI) / Annual Debt Payments
What It Means:
- A DSCR of 1.0 means you earn just enough to cover your debt.
- A DSCR above 1.25 is generally required for approval.
- A DSCR below 1.0 is a red flag—you don’t have enough income to cover loan payments.
How to Improve Your DSCR:
- Increase rental income (raise rents or increase occupancy)
- Reduce expenses like maintenance or utilities
- Choose longer loan tenures to reduce annual payment burden
Lenders may also adjust your DSCR based on market risks and location of the property.