What the ratio measures
DSCR stands for debt service coverage ratio, and it asks one question: does the property produce enough rent to cover what it costs to carry? Divide the rent by the payment and you have it. A result above 1.0 means the property covers itself with room to spare; below 1.0 means it doesn’t, and the file needs something else to work.
That’s the whole concept. What makes DSCR useful to an investor is what it leaves out, your job, your tax returns, your personal debt-to-income. The property is the borrower, in effect.
Which rent counts
If the property is tenanted, the signed lease is usually the starting point. If it’s vacant, or you’re buying it, the appraiser completes a rent schedule estimating market rent for a comparable unit in that area. Lenders differ on how they weigh a lease against a market estimate, particularly when the in-place rent is well under market because a long-term tenant hasn’t seen an increase.
This is worth knowing before you write an offer on a property with a below-market tenant in place. The rent roll you inherit can be the thing that moves the ratio, not the property.
What goes in the denominator
The payment side is more than principal and interest. It generally includes property taxes, insurance, and HOA dues where they apply, the whole cost of carrying the property, not just the loan.
That’s where most surprises live. Taxes get reassessed after a sale and the new bill can look nothing like the seller’s. An insurance quote pulled early and casually can come in materially higher once the property is actually underwritten. HOA dues on a condo or a planned community get forgotten entirely and then land on the file late.
Where deals actually fall apart
Rarely on the rent. Usually on a reassessed tax bill, an insurance quote that moved, or an HOA nobody accounted for. All three are knowable early, and all three are cheaper to check before you’re under contract than after.
Lenders set their own minimum ratio, and it varies by lender, property type and scenario. There is no universal number, and anyone who quotes you one without seeing the file is guessing.
What this means for your file
Send the address, the purchase price or current value, the actual or market rent, and, if you have them, the current tax bill and HOA dues. That’s enough for a first read on whether the ratio works before you spend money on anything.