DSCR formula
The debt service coverage ratio divides the income available to pay a loan by the payments due on it in the same year.[1]
- 1.00× means income exactly covers the payments, with nothing to spare.
- Above 1.00× leaves a cushion: at 1.25×, income is 25% more than the payments.
- Below 1.00× means the owner has to add cash to make the payments.
All the related ratios are collected on the real estate math formulas page. In the example, $96,000 ÷ $79,641 = 1.21×. At a 1.25× target, the same income supports a loan of about $1,012,549 at 6.5% over 30 years. Texas A&M's Investment by Design works through the same back-solve: size the refinance so the property keeps a 1.25 debt coverage ratio.[7]
Minimum DSCR for agency multifamily loans
For apartment buildings of five or more units, the published agency minimum is 1.25×:
| Program | Minimum DSCR | Maximum LTV | Notes |
|---|---|---|---|
| Fannie Mae DUS Conventional[3] | 1.25× | 80% | Existing, stabilized properties with at least 5 units |
| Fannie Mae Small Mortgage Loans[4] | 1.25× | 80% | Loans up to $9 million |
| Freddie Mac Optigo fixed-rate[5] | 1.25× | 75%–80% | Minimum loan $10 million; LTV depends on term |
| Freddie Mac Optigo, full-term interest-only | 1.25× | 65%–70% | Coverage tested on an amortizing payment |
Freddie Mac stopped taking applications for its Small Balance Loan program on April 30, 2026.[6] Lenders can also require more than the minimum for a particular property or market.[5] To size a new loan against both the DSCR and the loan-to-value limit, use the commercial mortgage calculator.
How lenders calculate it
Agency underwriting is stricter than a quick NOI ÷ payment:
- Income after reserves. Fannie Mae divides underwritten net cash flow, which is NOI minus a replacement reserve of at least $200 per unit per year, by the annual debt service.[1][2]
- Minimum expenses. Vacancy and bad debt of at least 5% of gross potential rent, a management fee of at least 3% of effective gross income, and taxes of at least last year's bill plus 3%.[2] The NOI calculator lets you apply the same floors.
- An amortizing payment, even on interest-only loans. Fannie Mae tests coverage on a level payment that includes amortization, at the higher of the note rate or its own underwriting rate floor.[1] The interest-only switch above shows how much an interest-only payment flatters the ratio.
DSCR loans for 1–4 unit rentals
A "DSCR loan" is a private investor mortgage on a house or small rental that qualifies on the property's rent. Because credit for a rental the owner will not occupy is business-purpose credit under Regulation Z, the consumer ability-to-repay rule does not apply and each lender sets its own minimum ratio.[9][10] Many of these lenders divide monthly rent by PITIA; choose "Rent ÷ PITIA" above, or use the DSCR loan calculator to find the down payment that meets a lender's minimum. A $2,600 rent against a $2,472 PITIA is 1.05×.
Agency single-family lending does not use a DSCR at all: when rent helps a borrower qualify, Fannie Mae takes 75% of gross monthly rent and subtracts PITIA.[8]
RelatedBuild NOI line by line on the NOI calculator, see the DSCR next to cash flow and cap rate on the rental property calculator, and check the DSCR after a cash-out refinance on the BRRRR calculator.
Frequently asked questions
What is a good DSCR for a rental property?
Agency multifamily programs require at least 1.25×. Private lenders on 1–4 unit rentals set their own minimums. A higher ratio means a bigger cushion against vacancy or rising costs.
How do you calculate DSCR on a rental property?
Divide annual NOI by annual debt service (12 × the monthly principal-and-interest payment). For loans that use rent ÷ PITIA, divide monthly rent by the full monthly payment including taxes, insurance and HOA dues.
What does a DSCR of 1.25 mean?
Income is 1.25 times the loan payments: for every $1.00 of payment there is $1.25 of net operating income.
Does DSCR include property taxes?
Yes, but in different places. In the NOI method, taxes and insurance are operating expenses inside NOI. In the rent ÷ PITIA method, they are part of the payment.
Sources
- 203.02 Underwritten DSCR (Multifamily Selling and Servicing Guide)
- 203.01 Underwritten Net Cash Flow (Multifamily Selling and Servicing Guide, Part II, Ch. 2)
- Conventional Properties Term Sheet (DUS)
- Small Mortgage Loan Program Term Sheet
- Optigo Fixed-Rate Loans term sheet
- Multifamily Seller/Servicer Guide Bulletin M2026-4 (Small Balance Loan applications end)
- Etter, W. E. Investment by Design (Publication 1055)
- B3-3.8-02, Rental Income from the Subject Property (Selling Guide)
- Regulation Z § 1026.3, Exempt transactions, and Official Interpretation 3(a)
- Regulation Z § 1026.43, Minimum standards for transactions secured by a dwelling