What is Debt Service Coverage Ratio (DSCR)?

DSCR asks one question: does the property pay for itself? Divide the rental income by the full monthly debt payment and you get a number. Above 1.0 the property covers its own debt with something left over; at exactly 1.0 it breaks even; below 1.0 the owner funds the shortfall from elsewhere every month.

The reason investors care is that a DSCR assessment looks at the property rather than at the borrower's personal income. That changes who can qualify — someone with several properties, or with income that is real but awkward to document conventionally, is assessed on whether this asset works. It is why the ratio has become the organizing idea of a whole category of investment-property lending.

The part worth getting right is the denominator. DSCR is normally struck against PITIA — principal, interest, taxes, insurance and any association dues — not against principal and interest alone. Taxes and insurance are exactly the two line items that have moved most in California in recent years, so a ratio calculated without them can look comfortable and then not be. Run it on the full payment, and run it again on a rent slightly below your assumption, before treating the result as settled.

Defined in Fannie Mae Multifamily Guide, Glossary.