Quick Answer
1.25 or higher is an ideal DSCR ratio. 1.0-1.24 is good (qualifies most lenders). 0.75-0.99 is borderline (possible with compensating factors). Below 0.75 is poor (hard to finance).1.0 minimum means rent exactly covers debt. Higher ratios get better rates and terms.
What is a Good DSCR Ratio?
DSCR Rating Scale
Property generates 50%+ more income than debt payments. Banks compete for this deal.
Strong cash flow cushion. Qualifies easily with top-tier rates and minimal documentation.
Ideal DSCR for most investors. Meets or exceeds most lender requirements. Excellent approval odds.
Decent cash flow. Approved by most lenders with standard terms. May need 25% down.
Break-even or slight positive cash flow. Approved but requires compensating factors (high credit, large down).
Property loses money monthly. Some lenders accept with 30-35% down and strong credit (700+).
Significant negative cash flow. Very hard to finance. Requires exceptional compensating factors.
Severely negative. Almost impossible to finance. Consider improving property income or reducing purchase price.
Why 1.25 is the "Sweet Spot"
Most lenders consider 1.25 DSCR as ideal because:
Lender Perspective:
- ✓25% cushion protects against rent drops
- ✓Covers 2-3 months vacancy per year
- ✓Room for unexpected repairs
- ✓Lower default risk
Investor Benefit:
- ✓Best interest rates (5.99-6.99%)
- ✓20-25% down accepted
- ✓Fast approval process
- ✓Actual positive cash flow
Real Example: 1.25 DSCR
$3,750 monthly rent ÷ $3,000 debt = 1.25 DSCR
= $750/month positive cash flow
= $9,000/year profit before other expenses
= Qualifies easily with 6.25% rate
How to Improve Your DSCR
Increase Rental Income
- •Raise rent to market rates (use Zillow/Rentometer)
- •Add amenities: washer/dryer, parking, storage
- •Short-term rental (Airbnb) often generates more
- •Add bedrooms/bathrooms through renovation
Reduce Purchase Price
- •Negotiate seller down 5-10%
- •Target undervalued properties
- •Buy in up-and-coming areas
- •Consider properties needing cosmetic work
Increase Down Payment
- •Put down 30% instead of 20-25%
- •Lower loan amount = lower monthly payment
- •Reduces principal & interest portion
- •Improves approval odds even if DSCR stays low
Get a Better Interest Rate
- •Improve credit score to 740+
- •Shop multiple lenders
- •Consider buying down rate with points
- •Time purchase during rate dips
Real Examples Across DSCR Spectrum
✓ Great Deal: 1.45 DSCR
⚠ Borderline: 1.05 DSCR
✗ Weak Deal: 0.90 DSCR
Calculate Your DSCR Now
See if your property hits the 1.25 sweet spot. Get instant DSCR calculation and qualification status.