What Is a Good Debt Service Coverage Ratio?

By Bill Lyons | Updated on May 6, 2025

Real estate investors seeking an investment property loan should consider their debt service coverage ratio (DSCR) to measure their cash flow and ability to pay debts. Lenders can use a borrower’s DSCR to determine their ability to repay the loan based on cash flow rather than income or job history. 

DSCR loans allow borrowers to invest in real estate while avoiding high rates, lengthy approval processes, and strict lending criteria to qualify based on cash flow rather than personal income.

If you’re a real estate investor, you may take itemized deductions on your taxes that reduce your taxable income and affect your ability to obtain a mortgage loan. While conventional loans consider your income, DSCR loans make it easy to qualify based on your rental income to help you start earning more quickly without needing to prove your ability to repay with bank statements. 

What Is a Debt Service Coverage Ratio?

Debt service coverage ratio (DSCR) refers to the amount of net cash flow a borrower has available to pay their mortgage. It’s a metric used by investors and lenders to analyze the performance of rental properties and determine whether borrowers qualify for a loan. DSCR compares a borrower’s rental income against the annual debt of the mortgage loan. 

Calculating DSCR will give you a ratio that indicates whether a property generates enough income to pay a mortgage. Lenders typically use this measurement to determine the maximum loan amounts when investors apply for DSCR mortgages.

Generally, the higher a DSCR, the more cash flow there is to cover the debt and provide the borrower with a cushion to pay for additional property expenses while taking some as income.

How to Calculate DSCR

To use the DSCR formula to determine your ability to repay a mortgage loan, divide the annual gross rental income by the total annual debt payments. 

Once you have that figure, you can determine whether or not you qualify for a loan based on a lender’s eligibility requirements. A DSCR of 1 shows that you have a gross rental income equal to the annual payments of your mortgage debt, proving your ability to repay. 

If you’re unsure how to calculate your DSCR or want to compare different loan scenarios, using a DSCR calculator can simplify the process. Quickly calculate your debt service coverage ratio based on your income and debt inputs, which can help you determine whether you meet lender requirements before applying for a loan.

What Is a DSCR Loan?

DSCR loans are a type of investment property financing that focuses on a property’s income potential rather than a borrower’s personal income. Instead of requiring tax returns or job verification, lenders assess eligibility based on the DSCR ratio. This makes DSCR loans a flexible and efficient financing option for investors looking to scale their real estate portfolio quickly.

DSCR loans are often easier to qualify for and have faster times to close than traditional investment property loans. Additionally, with no income verification, a borrower’s eligibility only depends on a single figure—-their debt service coverage ratio. 

These loans offer many benefits for investors, including the following:

• No tax returns or job verification required
• Large loan amounts up to $20,000,000
• Down payments as low as 20%
• 620 minimum credit score
• No limit on the number of properties
• Interest-only loan options are available
• Unlimited cash-out
• All types of rental properties are eligible, including a long-term and short-term rental

In addition to standard DSCR loans, investors can also leverage a DSCR home equity loan, which allows you to tap into your property’s equity without providing personal income.

What Is a Good DSCR?

As we’ve mentioned, a DSCR ratio of 1 means that you have precisely enough rental income to afford to repay the loan. But what is a good debt service coverage ratio in real estate?

A DSCR above 1.25 is ideal, as it signals strong cash flow and allows borrowers to qualify for the best loan terms and interest rates. Most lenders have a minimum DSCR requirement of at least 1.0, meaning the property’s income matches its debt obligations.

A DSCR below 1.0 indicates that rental income isn’t enough to fully cover the mortgage. While this is less favorable, borrowers can still qualify for a DSCR loan, especially if they have a strategy to improve cash flow. This could include raising rent, making property upgrades, or investing in a high-growth market. Griffin Funding offers DSCR loans to borrowers with a DSCR below 1.0, though these loans may require higher down payments, additional reserves, or higher interest rates.

Lenders assess DSCR to determine risk, and maintaining a strong ratio can help you secure better financing options. If a property’s DSCR falls below the lender’s minimum debt service coverage ratio, the lender may adjust loan terms, reduce the loan amount, or require additional collateral to approve financing.

How to Improve Your DSCR

All DSCR loan lenders require a minimum DSCR. However, the exact ratio value required varies by lender. 

If your DSCR is too low, you may not qualify for a loan. Additionally, even if you qualify for a loan, your maximum loan amount may still be too low to purchase your investment property. Increasing your DSCR is the best way to get lower interest rates and improve your chances of getting approved for a loan. 

Here are a few ways borrowers can improve their DSCR before applying: 

Interest Only Loan

One of the best ways to increase your DSCR is to apply for an interest-only loan. Reducing your debt payments on your investment property means having a higher DSCR in the lender’s eye.

Increase Rental Income

You can increase your rental income by raising or filling vacancies faster if you can’t cut costs. While rents usually increase slightly every year, you can increase rental income substantially if you have renovated or improved the unit. Meanwhile, filling vacancies can help you earn more money to increase your income, but it can cost money in marketing. Adding amenities can also go a long way.

Refinance

Refinancing your existing mortgage loan can help you save money in the long run by reducing your monthly payments with more favorable interest rates and terms. A lower interest rate means you’ll pay less over the life of the loan, effectively reducing your monthly payments. 

Raise Property Value

Raising the property value is another option, but it may require a substantial loan. While property values typically increase yearly, you can invest in renovations that allow you to increase the rent and attract more tenants, which will increase your cash flow. 

Negative Cash Flow DSCR Loans

Negative cash flow DSCR loans, also known as no ratio DSCR loans, are riskier and, therefore, come with stricter underwriting standards and higher down payments.

• Minimum loan amount: $150,000 ($3,000,000 maximum)
• Minimum down payment: 25% up to $1,000,000 (add 5% for Short Term Rentals)
• Minimum down payment: 40% up to $3,000,000 (add 5% for Short Term Rentals)
• Minimum credit score: 700 FICO

What are the reasons that you should consider acquiring a negative cash flow property using a no ratio DSCR loan?

• There is an appraisal gap on the comparable rents. There are not enough rental comps to accurately show the true rental income issued by the appraiser and you are confident that the actual rent is higher.
• You intend to carry out renovations to the property once it is acquired. These improvements will not only enhance the value of the property but also allow you to increase the rents. Consequently, this will result in a cash flow positive position for you.
• You are currently renting out your investment property below market with a lot of tappable equity and want to do a cash-out refinance to rehab the property to increase rents and/or acquire another property that will help offset the negative cash flow.
• You are purchasing a property that utilizes ADU income on an unpermitted ADU (which the lender can’t use for rental income qualification).
• You are purchasing a property intending to build an ADU or multiple ADUs on it that will create positive cash flow.

In the current market particularly, the allure to engage in an equity play is high, speculating on a 20-30% price increase should interest rates fall, with the aim of achieving quick financial gains. Many investors are willing to endure short-term losses on rents, banking on substantial appreciation in the coming years. However, most experts assert that, while investing in real estate, it is crucial not to lose focus on the fundamentals. They maintain that any appreciation should be regarded as a bonus, not a given certainty.

Another more precarious rationale involves situations where the property does not generate positive cash flow at the prevailing Debt Service Coverage Ratio (DSCR) interest rates; however, it could potentially do so if interest rates decline in the future, coupled with the average annual rent growth. The strategy here is to acquire the property now and opt for rate/term refinancing later, or sell if values escalate sufficiently. Relying on a decrease in interest rates is generally not advisable as interest rates are, to a large extent, beyond one’s control. Investment properties should either be generating cash flow presently or have a robust plan in place to ensure positive cash flow in the future.

Avoid purchasing a property with negative cash flow if you lack a strategic plan to enhance rents. The team at Griffin Funding can review historical appreciation in your market; if it reveals an area with sluggish growth and minimal pent-up buying demand, you might not realize quick profits even when the market shifts. If the property doesn’t generate positive cash flow with your loan calculated at the prevailing DSCR rates, and there is no avenue to raise rents, it may not yield positive cash flow for a prolonged period, potentially becoming a financial drain. Overpaying or investing in unfruitful ventures is something everyone wants to steer clear off.

What Loans Can I Get With a Low DSCR?

Griffin Funding is a premier provider of DSCR loans nationwide, and our requirements are more flexible than many other lenders. However, if you don’t think a DSCR loan is the right option to support your investment goals, we still have other non-QM mortgages available you might qualify for, including some of the following:

• Bank statement loans: With bank statement loans, we’ll determine your ability to repay by using your bank statements to verify personal income instead of tax returns. This option is ideal for borrowers who take the itemized deduction when doing their taxes and have significant expenses.
• Asset-based loans: These loans are secured by your assets rather than income verification. Lenders assess the value of stocks, bonds, bank accounts, and other qualifying liquid assets to determine loan eligibility.
• Private money loans: Private money loans are short-term mortgages that come from non-traditional lenders, such as individual investors or private lending firms, offering flexible terms and faster approvals.
• Jumbo loans: Designed for high-value properties, jumbo loans exceed conventional loan limits. They are ideal for luxury real estate investments and require strong credit, higher down payments, and financial reserves.
• Interest-only loans: These loans allow investors to save on monthly mortgage payments for the first portion of the loan. Your payments will only apply to interest instead of the principal amount during this time.

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Apply for a DSCR Loan

DSCR loans are excellent options for new and veteran real estate investors who don’t qualify for another loan based on their income. Instead of using tax returns, pay stubs, or bank statements to verify income, lenders will calculate a borrower’s DSCR to determine their ability to repay the loan and the loan amount a borrower qualifies for. 

If you’re ready to invest in real estate, apply for a DSCR loan with Griffin Funding. Our mortgage experts can help you through the entire process, from application to closing, for a streamlined experience. We also offer the Griffin Gold app to seamlessly track your finances, monitor your credit, compare loan options, and prepare for homeownership.

Reach out to Griffin Funding today to see how you can start investing in real estate.

Bill Lyons

Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 23 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 11 years in business.