DCR (Debt Coverage Ratio)

Debt Coverage Ratio (DCR)—often called DSCR in real estate—is a key metric lenders use to measure whether a property generates enough income to cover its loan payments. In simple terms, it compares the property’s Net Operating Income (NOI) to its total debt service (principal and interest payments, typically measured annually).

Debt Coverage Ratio (DCR) = Net Operating Income (NOI) ÷ Total Debt Service

A DCR of 1.00 means the property produces exactly enough NOI to pay the mortgage—no cushion. A DCR above 1.00 indicates the property has “breathing room,” which is why many lenders prefer a minimum like 1.20–1.25 depending on the loan program and the risk profile.

How Lenders Use DCR to Size a Loan

Lenders often underwrite to more than one limit and then choose the most conservative result. A common approach is:

Maximum Loan = the lesser of (LTV limit) or (DCR limit)

For example, a lender might state: “75% LTV or 1.25 DCR—whichever is lower.”

• On a $1,000,000 property, the LTV cap may allow up to $750,000.

• But based on the property’s NOI, current interest rates, and the lender’s required 1.25 DCR, the payment-supported loan might only be $650,000.

This is why DCR matters so much: even when the property value supports a larger loan, the income and the payment may not.