Minimum DSCR Ratio: What Lenders Actually Require

Most DSCR lenders require a minimum ratio between 1.00 and 1.25, meaning the property's rental income must cover 100-125% of the total monthly debt service (principal, interest, taxes, insurance, and association fees).

But that standard range hides significant variation. Your required minimum DSCR depends on your credit score, down payment size, property type, location, experience level, and the lender you choose.

Understanding what lenders actually require—not just what they advertise—helps you target realistic deals and structure offers that will qualify.

Standard Minimum DSCR Requirements

The Baseline: 1.00 to 1.25

Most common requirement: 1.10-1.20 for standard scenarios

Here's what that means in practice:

At 1.00 DSCR: Rental income exactly equals PITIA

• Rent: $2,500/month
• PITIA: $2,500/month
• No cash flow cushion

At 1.10 DSCR: Income covers 110% of expenses

• Rent: $2,500/month
• PITIA: $2,273/month
• Cash flow: $227/month cushion

At 1.25 DSCR: Income covers 125% of expenses

• Rent: $2,500/month
• PITIA: $2,000/month
• Cash flow: $500/month cushion

Higher minimum DSCR requirements mean lower loan amounts for the same property. A property that qualifies for $400,000 at 1.00 DSCR might only qualify for $340,000 at 1.25 DSCR.

Why Lenders Require Minimum DSCR

The ratio protects lenders against:

Vacancy: If the property sits vacant for one month, you still owe the mortgage. DSCR above 1.0 means you have cash flow to cover occasional vacancies.

Maintenance and repairs: Rental properties need ongoing maintenance. A 1.20 DSCR provides $200-$500/month cushion for repairs.

Rent decreases: If market rents soften, DSCR above 1.0 means you can reduce rent slightly and still cover the mortgage.

Property expense increases: Property taxes and insurance increase annually. Higher DSCR provides buffer against rising expenses.

Borrower default risk: Properties with negative or breakeven cash flow default at 3-5x the rate of properties with positive cash flow.

How Minimum DSCR Varies by Lender Type

Aggressive Non-QM Lenders: 0.75-1.00

Some lenders accept DSCR below 1.00:

DSCR 0.75-0.99 programs:

• Available for strong borrowers (740+ credit, 25%+ down payment)
• Rates typically 1.5-2.5% higher than standard DSCR loans
• Designed for properties in high-appreciation markets where cash flow is secondary to appreciation
• Common in expensive coastal markets (SF Bay Area, SoCal, NYC metro)

When 0.75 DSCR makes sense:

• Properties in strong appreciation markets
• Short-term holds (planning to refinance or sell within 2-3 years as equity builds)
• Investors with substantial reserves (12-24 months)

Example: $2M property in San Francisco

• Market rent: $6,500/month
• PITIA at 75% LTV: $10,200/month
• DSCR: 0.64

This property would never qualify under standard DSCR criteria, but it might appreciate $150,000/year. Lenders in this market accept sub-1.0 DSCR for strong borrowers betting on appreciation.

Standard Non-QM Lenders: 1.00-1.10

The most common category:

Typical requirement: 1.00 DSCR minimum Best pricing tier: 1.10-1.20 DSCR

These lenders accept 1.00 DSCR but price it with:

• 0.50-1.00% rate premium vs 1.25 DSCR
• Higher credit score requirements (700+ vs 680+)
• Lower LTV limits (75% vs 80%)

Who qualifies at 1.00 minimum:

• Credit scores 720+
• 20-25% down payment
• Experienced investors (3+ rental properties)
• 6-12 months reserves

Conservative Non-QM Lenders: 1.20-1.25

More risk-averse lenders require:

Minimum: 1.20-1.25 DSCR across all scenarios

This category includes:

• Smaller lenders with limited capital
• Lenders in uncertain economic environments
• Banks serving older, risk-averse investor pools

Trade-off: These lenders often offer better rates (0.25-0.50% lower) because they're selecting lower-risk loans. If your property easily exceeds 1.25 DSCR, you might get better pricing here than with lenders accepting 1.00.

Portfolio Lenders: Varies Widely (0.90-1.40)

Portfolio lenders set their own rules:

Range: Some require 0.90, others want 1.40+

Portfolio lenders consider the full relationship:

• Your deposit balances with the bank
• Other loans you have with them
• Total net worth and liquidity
• Business relationship (operating accounts, business loans)

A borrower with $500,000 in deposits and three existing loans might get approved at 0.95 DSCR. A new customer with no relationship might need 1.30.

Credit Unions: 1.15-1.30

Member-focused lenders tend toward conservative requirements:

Typical minimum: 1.20-1.25

Credit unions serve their members conservatively. They're not trying to maximize volume—they're trying to make safe loans.

Advantage: Better rates (often 0.25-0.75% below non-QM lenders) Disadvantage: Stricter DSCR requirements and membership requirements

How DSCR Requirements Vary by Risk Factors

The same lender might require different minimum DSCRs based on:

Credit Score Tiers

740+ credit:

• Minimum DSCR: 1.00-1.10

700-739 credit:

• Minimum DSCR: 1.10-1.15

680-699 credit:

• Minimum DSCR: 1.15-1.20

660-679 credit:

• Minimum DSCR: 1.20-1.30

620-659 credit:

• Minimum DSCR: 1.25-1.40 (if available at all)

Lower credit scores signal higher default risk. Lenders compensate by requiring stronger cash flow.

Loan-to-Value (LTV) Ratio

65-70% LTV:

• Minimum DSCR: 1.00-1.10

71-75% LTV:

• Minimum DSCR: 1.10-1.15

76-80% LTV:

• Minimum DSCR: 1.15-1.25

81-85% LTV:

• Minimum DSCR: 1.25-1.35 (rarely available)

Higher leverage increases lender risk. More equity in the deal allows lower DSCR minimums.

Property Type

Single-family residence:

• Minimum DSCR: 1.00-1.20

2-4 unit multifamily:

• Minimum DSCR: 1.10-1.25

Condos (warrantable):

• Minimum DSCR: 1.15-1.25

Condos (non-warrantable):

• Minimum DSCR: 1.20-1.35

Rural properties:

• Minimum DSCR: 1.15-1.30

Single-family homes are easiest to rent and sell, earning the best terms. Condos, multifamily, and rural properties carry additional risk factors (HOA complications, higher management complexity, lower liquidity).

Geographic Market

Strong markets (growing population, diverse employment, landlord-friendly):

• Minimum DSCR: 1.00-1.15

Average markets:

• Minimum DSCR: 1.10-1.20

Weak markets (declining population, single employer economy, tenant-friendly laws):

• Minimum DSCR: 1.20-1.35

Lenders analyze MSA-level (Metropolitan Statistical Area) economic indicators. Properties in strong markets qualify with lower DSCR minimums.

Investor Experience Level

First investment property:

• Minimum DSCR: 1.15-1.25

2-4 investment properties:

• Minimum DSCR: 1.10-1.20

5+ investment properties:

• Minimum DSCR: 1.00-1.15

10+ properties with strong track record:

• Minimum DSCR: 0.90-1.10

Experienced landlords with proven success get more favorable terms. You've demonstrated competence managing rentals and handling problems.

Reserve Levels

6 months reserves:

• Minimum DSCR: 1.15-1.25

9 months reserves:

• Minimum DSCR: 1.10-1.20

12+ months reserves:

• Minimum DSCR: 1.00-1.15

24+ months reserves:

• Minimum DSCR: 0.90-1.10 (with strong profile otherwise)

Deep reserves prove you can weather vacancies, repairs, and market downturns. Lenders reward this security with lower DSCR requirements.

What If Your Property Doesn't Meet Minimum DSCR?

You have several options when properties fall short:

Increase Your Down Payment

Lowering the loan amount reduces PITIA, improving your ratio:

Example: $400,000 property, rents for $2,400/month

At 75% LTV ($300,000 loan):

• P&I at 8%: $2,201
• Taxes + Insurance: $500
• Total PITIA: $2,701
• DSCR: 0.89 (doesn't qualify)

At 65% LTV ($260,000 loan):

• P&I at 8%: $1,907
• Taxes + Insurance: $500
• Total PITIA: $2,407
• DSCR: 1.00 (qualifies)

The extra $40,000 down payment made the deal work.

Negotiate a Lower Purchase Price

If the numbers don't work at asking price, make a lower offer:

Scenario: Property listed at $450,000, rents for $2,600/month, needs 1.20 DSCR

At $450,000 (75% LTV = $337,500 loan), DSCR = 0.94 (doesn't qualify)

Maximum supportable price: ~$380,000 (1.20 DSCR)

Offer $380,000 with justification: "Property doesn't cash flow at asking price. I can pay $380,000 cash flowing deal, or we can explore seller financing for the gap."

Many sellers don't understand rental math. Explaining that the property doesn't generate enough rent to support the asking price can lead to negotiation.

Increase Rental Income

If the property is under-rented:

Current rent: $2,200 Market rent: $2,600

Sign a lease at market rate before closing, or present evidence to the appraiser that $2,600 is achievable. The $400/month increase might move DSCR from 0.98 to 1.18.

Property improvements: A $10,000 renovation (new flooring, paint, updated kitchen hardware) might support $200-$300/month higher rent. If that's the difference between qualifying and not qualifying, it's worth it.

Use a Lower DSCR Lender

Shop lenders with lower minimums:

If your property shows 1.05 DSCR and Lender A requires 1.20, find Lender B that accepts 1.00.

Trade-off: Lenders with lower minimums usually charge higher rates (0.50-1.00% more). Calculate whether the higher rate is worth it:

Option A: No loan (deal falls through) Option B: 9.5% rate instead of 8.5%, property cash flows $100/month instead of $200/month

Option B might still be a good investment if you believe in long-term appreciation.

Seller Financing or Second Mortgage

When institutional financing falls short:

Example: Property needs 1.20 DSCR, shows 1.05 at 75% LTV

Structure:

• First mortgage: 60% LTV ($240,000) at 8% = 1.28 DSCR (qualifies)
• Seller second: 15% LTV ($60,000) at 6% interest-only for 5 years
• Your down payment: 25% ($100,000)

The seller carries a second mortgage, giving you time to increase rents or build equity before refinancing into a single loan.

Cash Purchase with Delayed Financing

If you have cash and the property just misses DSCR:

1. Buy the property cash
2. Increase rents or make improvements over 6-12 months
3. Once DSCR improves to 1.20+, do a cash-out refinance

This strategy requires significant capital but works when properties need minor positioning to hit lender minimums.

Accept a Higher Rate for Lower DSCR

Some lenders offer tiered pricing:

1.25+ DSCR: 8.00% rate 1.10-1.24 DSCR: 8.50% rate 1.00-1.09 DSCR: 9.25% rate 0.75-0.99 DSCR: 10.50% rate

If your property shows 0.95 DSCR, you might qualify at 10.50%. Run the numbers:

At 10.50% vs 8.00%, you're paying an extra $600/month on a $300,000 loan. If the property has strong appreciation potential or you plan to refinance in 2-3 years when you can improve the DSCR, it might be worth it.

DSCR Floors You Can't Break

Some lenders have hard DSCR floors:

Common hard minimums:

• 0.75 DSCR (ultra-aggressive lenders)
• 1.00 DSCR (most common floor)
• 1.10 DSCR (conservative lenders)

Below these floors, no amount of credit score, down payment, or reserves will get you approved.

Why floors exist: Below certain DSCR levels, default risk becomes unacceptable regardless of compensating factors. Lenders have data showing that properties below 0.75 DSCR default at rates that make them uneconomic to lend on.

How to Calculate Your Required DSCR

Before shopping lenders, know what DSCR your property will show:

Step 1: Determine Monthly Rent

Use the appraiser's likely rent estimate (conservative):

• Research 3-6 comparable rentals in the area
• Use the median rent from those comps
• Don't use aspirational/optimistic rent

Example: Comps show $2,400, $2,600, $2,500, $2,550, $2,450, $2,600 Median = $2,525 Conservative estimate = $2,500

Step 2: Calculate Monthly PITIA

Principal & Interest: Use a mortgage calculator with your expected loan amount and interest rate

Taxes: Annual property tax ÷ 12

Insurance: Get insurance quotes; landlord policies run $1,200-$3,500/year

Association: Monthly HOA/condo fee (if applicable)

Example: $300,000 loan at 8.5%

• P&I: $2,307
• Taxes: $350
• Insurance: $175
• HOA: $0
• Total PITIA: $2,832

Step 3: Calculate DSCR

DSCR = Monthly Rent ÷ Monthly PITIA

$2,500 ÷ $2,832 = 0.88 DSCR

This property doesn't meet 1.00 minimum. You need to increase rent, decrease loan amount, or find a sub-1.0 lender.

Bottom Line

Minimum DSCR requirements range from 0.75 to 1.40 depending on lender type, your credit profile, property characteristics, and market conditions. Most borrowers will encounter 1.00-1.25 minimums, with 1.10-1.15 being the most common.

Strong borrowers (740+ credit, 25%+ down, experienced investors, deep reserves) qualify at the lower end of the range. Weaker profiles require higher DSCRs to compensate for additional risk.

If your property doesn't meet minimum DSCR:

1. Increase your down payment to reduce PITIA
2. Negotiate a lower purchase price
3. Document higher rental income
4. Shop lenders with lower minimums
5. Consider alternative financing structures

The goal isn't just to meet the minimum DSCR—it's to buy properties with enough cash flow cushion to handle vacancy, maintenance, and market changes. A property at exactly 1.00 DSCR will feel financially tight. Target 1.15-1.25+ for comfortable, sustainable ownership.