What Is DSCR? Debt Service Coverage Ratio for CRE Explained

The Short Answer

DSCR, or Debt Service Coverage Ratio, tells you how many times over a property's net operating income covers its annual debt payments. A DSCR of 1.30x means the property generates $1.30 of income for every $1.00 owed in principal and interest that year. It is the single number lenders lean on hardest when deciding how much they will lend against a commercial property, because it answers the question that matters most to them: can this deal pay me back out of its own cash flow.

If you want to run your own numbers before a lender does, our free DSCR calculator does the math in seconds.

The DSCR Formula

The formula itself is simple:

• DSCR = Net Operating Income (NOI) / Annual Debt Service
• NOI is the property's income after operating expenses but before debt payments and taxes.
• Annual debt service is the total of principal and interest payments due over the year.

The ratio is unitless on purpose. It does not care whether the property is a $2 million retail strip or a $40 million multifamily asset. It only cares about the relationship between what the property earns and what it owes.

A Worked Example

Say a property produces $717,000 in NOI for the year, and the loan on it requires $550,000 in annual debt service (principal plus interest combined). The math is:

• DSCR = $717,000 / $550,000
• DSCR = approximately 1.30x

That 1.30x means the property's income covers its debt payments with 30% to spare. That cushion is what a lender is actually buying when it sets a minimum DSCR: room for NOI to soften, a vacancy to hit, or expenses to run hot, without the property missing a payment.

How DSCR Sizes a Loan

DSCR does not just grade a deal after the fact. It actively sets the ceiling on how much a lender will let you borrow. Lenders set a minimum DSCR they will underwrite to, commonly 1.20x to 1.25x for stabilized assets, and then work backward from projected NOI to find the maximum debt service the deal can support.

Using the same $717,000 NOI, if the lender's minimum is 1.25x, the math runs in reverse:

• Allowable annual debt service = $717,000 / 1.25
• Allowable annual debt service = $573,600

That $573,600 ceiling on annual debt service, combined with prevailing interest rates and the amortization schedule, is what caps the actual loan amount. A higher NOI or a lower rate lets the lender size a bigger loan against the same minimum DSCR. This is why DSCR sizing and loan-to-value sizing are two separate tests run side by side. For the LTV side of that comparison, see our explainer on loan-to-value (LTV).

Where DSCR Misleads

DSCR is only as honest as the NOI feeding it, and that is where deals get misread. A few places it breaks down:

• Which NOI is being used. In-place NOI, stressed NOI, and underwritten (pro forma) NOI can produce three different DSCR numbers for the same property. Ask which one a lender or broker is quoting before you compare deals.
• Interest rate movement. DSCR is not fixed. Rising rates raise annual debt service, which pushes DSCR down, and this is exactly the mechanism that crushes DSCR at refinance on loans that looked fine at origination.
• Global versus property-level DSCR. Lenders sometimes look at a borrower's global DSCR, which blends income and debt across every property the borrower owns, and that number can look very different from the DSCR of the single property being financed.
• Passing DSCR is not enough on its own. A deal can clear the DSCR minimum comfortably and still fail on loan-to-value or debt yield. Lenders test all three, and the tightest one wins. Debt yield in particular strips out rate and amortization assumptions entirely, which is why it is worth understanding as a separate check. See our explainer on debt yield for how that test works.

Underwriting a deal correctly means pulling the right NOI, testing it against current rates, and running DSCR alongside LTV and debt yield rather than treating any single ratio as the final word. That is the kind of cross-checking that is easy to skip when you are underwriting by hand under deadline pressure, and it is exactly where an AI underwriting copilot earns its keep: it pulls the NOI components, runs DSCR, LTV, and debt yield together, and flags when they disagree.

Want to check a deal right now? Run the numbers through our free DSCR calculator.