DSCR Guide
Understand debt-service coverage and why lenders use cash flow to evaluate repayment capacity.
What Is DSCR?
Debt service coverage ratio (DSCR) measures whether a property or business generates enough cash to pay its debt. It equals cash available for debt service divided by total annual debt service. A DSCR of 1.00x means cash flow just covers the payments. Funding sources usually want a cushion above that, and the required level varies by source, property type and transaction.
Formula
DSCR = cash available for debt service ÷ total debt service.
Interpretation
A ratio above 1.00x indicates cash flow exceeds modeled debt service.
Context
Definitions vary by lender and transaction.
Use the Tool
Run an illustrative scenario, then review the result in context.
An Illustrative DSCR Example
Funding sources define cash available for debt service differently. For income property it is usually net operating income. For an operating business it may be based on adjusted earnings or global cash flow.
Common DSCR Mistakes
- Using gross revenue instead of net cash flow
- Ignoring vacancy, operating expenses or reserves
- Leaving out existing debt payments when measuring overall coverage
- Assuming one funding source's DSCR requirement applies to all
DSCR FAQs
What is a good DSCR?
There is no single number. A ratio above 1.00x means cash flow exceeds modeled debt service, and funding sources set their own minimums that vary by property type, borrower and transaction.
What is DSCR financing?
A DSCR loan is an investment-property financing approach in which qualification focuses mainly on the property's rental income relative to its debt service rather than on the borrower's personal income. Availability, terms and eligibility vary by funding source.
How is DSCR different from LTV?
DSCR measures repayment capacity from cash flow. LTV measures the loan amount relative to the asset's value. Funding sources typically evaluate both.
Have a real scenario?
Use the guide to organize the question, then let CMCC review the facts.
Related CMCC Tools & Financing Paths
Use the resource to understand the issue, then move to the relevant calculator, financing path or application when the scenario is ready.