The debt-service coverage ratio is the lender's core question in one number: does this property earn enough to pay its own mortgage? It also happens to be one of the best safety gauges you can run on your own portfolio.
How it's computed
DSCR = NOI ÷ annual debt service. A property with $30,000 NOI and $24,000 of yearly mortgage payments has a DSCR of 1.25 — income covers the debt 1.25 times over. Below 1.0, the property doesn't pay for itself and you're feeding it from other income every month.
What lenders want
Most investment-property lenders want a DSCR of 1.20–1.25 or better; some DSCR-loan programs go as low as 1.0–1.1 at higher rates and lower leverage. In practice this ratio decides how much the bank will lend based on the property's rental income — the required coverage effectively caps your loan size: a lender needing 1.25 coverage will only size the loan so that its payments fit under NOI ÷ 1.25. Stronger DSCR often earns better pricing, not just approval.
Using it as an owner
Run DSCR on each property annually with real trailing numbers, not the pro-forma. A portfolio running at 1.4+ can absorb a bad month; one at 1.05 is one roof leak from negative. It's also the first number to check before a cash-out refinance — the new, larger payment must still clear the coverage bar.
Worked example
A triplex produces $34,500 NOI. You want a loan whose lender requires 1.25 DSCR. Maximum allowed debt service = $34,500 ÷ 1.25 = $27,600/year ($2,300/month). At 6.75% on a 30-year amortization, that payment supports roughly a $355,000 loan — regardless of what the property appraises for.
When this rule of thumb breaks
DSCR is only as honest as the NOI feeding it: asking rents and missing expense lines inflate coverage exactly when it matters most. It's a snapshot — a lease expiring next quarter or an adjustable rate resetting can drop a healthy 1.3 under 1.0 without warning. And on 1–4 unit properties financed with conventional loans, lenders may qualify you on personal income instead, so a great DSCR doesn't guarantee approval, and a weak one doesn't always block it.