DSCR Requirements Explained: 1.10 vs 1.25

What Are DSCR Requirements?

DSCR requirements refer to the minimum debt service coverage ratio a lender needs to see before approving a rental property loan. Unlike conventional mortgages that focus on personal income, DSCR loans evaluate whether the property itself generates enough cash flow to cover the mortgage.

Most DSCR lenders set their minimum between 1.10 and 1.25, though some programs accommodate ratios as low as 1.0 (breakeven) or even below.

1.10 DSCR vs 1.25 DSCR: What Is the Difference?

A 1.10 DSCR means the property earns 10% more than the debt payment. This is the minimum threshold for many lenders, but it typically comes with higher interest rates and may require a larger down payment.

A 1.25 DSCR indicates the property earns 25% more than its debt obligations. This is considered strong by most lenders and usually qualifies borrowers for better rates, lower fees, and more favorable terms.

Example: How DSCR Thresholds Impact Your Loan

Consider a property with $2,400/month in rent and $1,000 in monthly operating expenses. The NOI is $1,400/month.

If the monthly mortgage is $1,273, the DSCR = $1,400 / $1,273 = 1.10 (minimum threshold).
If the monthly mortgage is $1,120, the DSCR = $1,400 / $1,120 = 1.25 (strong threshold).

The difference in monthly payment is only $153, but it can significantly impact your rate and approval odds.

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