As a landlord, you want your rental income to cover your mortgage expenses and then some. By knowing how to calculate your debt-service coverage ratio (DSCR), you can quickly estimate whether a property will be cash flow positive or negative.
At ABL, we’ve helped landlords analyze and finance investment properties nationwide with our fast, flexible DSCR loan programs. If you need financing for your next rental, we’re here to help.
What Is DSCR in Real Estate?
In real estate, debt-service coverage ratio (DSCR) measures a property’s ability to cover its debt service with its income. The higher the DSCR, the more secure and profitable the investment.
How to Calculate DSCR
To calculate DSCR, divide a property’s net operating income (NOI) by its total debt service.
Here’s the formula:
DSCR = Net Operating Income (NOI) / Total Debt Service
Where:
- NOI is total monthly rental income minus total operating expenses
- Total debt service is total monthly mortgage payment (principal and interest)
For example, imagine you own a rental property that generates an NOI of $3,000 and has a monthly mortgage payment of $2,000. In this case, your DSCR would be 1.5 ($3,000 / $2,000).
In contrast, say the same property only generated $1,000 in NOI due to a vacancy or market downturn. Then the DSCR would fall to 0.5 ($1,000 / $2,000).
What Is a Good DSCR?
A “good” DSCR can be subjective, but here are some distinct DSCR ranges to know:
- Anything above 1.0 means the property’s income can cover its debt service.
- Anything under 1.0 means the property’s income can’t cover its debt service.
- Exactly 1.0 means the property is breaking even.
As an investor, you should aim for a DSCR of at least 1.2 to lock in positive cash flow and a financial cushion for potential downturns.
That said, some lenders may have their own DSCR requirements, particularly for DSCR loans.
What Is a DSCR Loan?
A DSCR loan is a mortgage for which DSCR is the main lending criterion. In other words, borrowers are qualified based on the property’s cash flow rather than their personal income.
For example, ABL offers DSCR loans for properties with a DSCR of at least 1.2. Of course, borrowers must still meet other requirements, including having a minimum credit score of 680. However, the biggest loan approval factor is the property’s DSCR.
Benefits of a DSCR Loan
Getting a DSCR loan instead of a conventional mortgage has many advantages:
No Personal Income Verification
Conventional mortgages make you verify your personal income with tax returns, W-2s, and pay stubs. DSCR loans skip all that since they’re approved based on the property’s cash flow.
No Maximum DTI Requirement
To qualify for most mortgages, you must maintain a debt-to-income ratio (DTI) of no more than 36%, meaning your monthly debt payments can’t exceed 36% of your monthly income.
By contrast, there’s no limit to how much debt you can carry in DSCR loans, so long as the underlying property (or properties) generate enough income to pay the debt service. This makes it easier to scale your rental portfolio.
Faster Closings
Since DSCR loans don’t have personal income or DTI requirements, they involve less paperwork, leading to faster underwriting and closings. For example, ABL’s DSCR loans can close in as few as 20 days.
The faster you close, the faster you can seize opportunities before your competition does.
Flexible Property Types
Many traditional mortgages have strict rules about eligible property types. For example, they often only finance primary residences, second homes, and potentially some rentals.
Meanwhile, DSCR loans tend to be more flexible. At ABL, we’ll finance single-family, multifamily, and condo properties, whether they’re long-term or short-term rentals.
Higher Loan Limits
Conventional mortgages tend to have lower loan limits. For example, in 2025, the maximum conforming loan amount for single-family homes is $806,500. Meanwhile, ABL offers DSCR loans of up to $5 million, allowing you to purchase higher-value properties more easily.
Tailored to Investors
Finally, DSCR loans are tailored to investors’ needs. At ABL, we understand the opportunities and challenges that landlords face. That’s why we only approve loans that we think will boost your investment. Your success is our success.
How to Get a DSCR Loan
Now that you know the benefits of DSCR loans, here’s how to get one:
1. Pre-Qualify for a DSCR Loan
First, pre-qualify for a DSCR loan from a lender like ABL. All you have to do is provide some basic details on you and the property, and we’ll let you know if there’s potential.
2. Calculate the Property’s Potential DSCR
Once you have a conditional DSCR loan offer, calculate the deal’s DSCR based on the loan offer’s details. You may want to use a mortgage calculator. Ensure you can achieve the lender’s minimum DSCR requirement.
3. Apply and Get Approved for a DSCR Loan
Submit a full DSCR loan application by providing additional documentation about you and the property. If the loan is approved, our underwriting team will issue an official loan offer.
4. Close on the DSCR Loan
Close on the DSCR loan by transferring funds for your down payment and closing costs, and then signing on the dotted line. The property title will then be transferred to you, and you can start searching for tenants and collecting rental income.
Pre-Qualify for a DSCR Loan from ABL Today
Ultimately, understanding DSCR and how DSCR loans work can give you a major advantage as a real estate investor. It opens doors when you’ve exhausted other financing options. Whether you’re a total beginner or a seasoned pro, DSCR loans can be a powerful investment tool.
At ABL, we specialize in helping investors like you secure fast, flexible funding tailored to your strategy. Ready to take the next step? Pre-qualify for a DSCR loan today and start growing your rental portfolio with confidence.