DSCR is the number the lender is actually reading

There is a number on every Datum listing that most buyers skim past and every lender opens with. It is the debt service coverage ratio, and on an investment loan it decides whether there is a deal at all.

What it is

Net operating income divided by the annual mortgage payment. Rent, less everything it costs to run the house, over what the loan costs to carry.

At 1.00 the property exactly pays its own mortgage and nothing else. At 1.25 it earns a quarter more than the payment. Most lenders writing investment loans want to see 1.20 to 1.25, and price the loan off it.

Why it moves when you do not expect it to

Three things push it around, and only one of them is the house:

• The rate. A point of interest moves the payment far more than it moves the rent, so the ratio falls quickly in a rising market.
• Your down payment. More equity, smaller payment, better ratio. This is the lever most buyers reach for, and it is the expensive one.
• The expense assumptions. Insurance, taxes, management, vacancy and the reserve all come out of NOI before the ratio is struck. A model that is generous about expenses produces a ratio the lender will not agree with.

Read it against the rate, not on its own

A listing showing 1.31 at 6.5% is a different property from the same listing at 7.5%. Change the rate on any Datum model and watch the ratio move with it — that is the number to take to a lender, not the one printed on the day the listing went up.