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Debt Service Coverage Ratio (DSCR)

Also known as: DSCR · Debt coverage ratio · Income coverage ratio · Rental coverage ratio

Net operating income divided by the annual mortgage payments. Lenders financing a BC rental usually want at least 1.10 to 1.20 before they will approve it.

Debt Service Coverage Ratio (DSCR) is a rental-property and small-commercial underwriting metric defined as Net Operating Income (NOI) divided by annual debt service (principal and interest). A DSCR of 1.00 means NOI exactly covers debt payments; a DSCR of 1.20 means NOI is 20% above debt service.

BC lenders financing 1–4-unit rental properties typically require DSCR ≥ 1.10–1.20 at the qualifying rate; commercial-class (5+ unit) mortgages start around 1.25 and rise with deal complexity. DSCR is paired with, not a replacement for, the borrower's personal GDS/TDS test on residential rental purchases.

DSCR is a lender-policy ratio, not a regulatory threshold. It is not codified in OSFI Guideline B-20 or CMHC underwriting rules; each lender sets its own DSCR floor and rental-income inclusion rate (typically 50–80% of gross rents recognized after vacancy and operating-expense haircuts). The reality investors miss: lenders compute DSCR at the stress-test qualifying rate, not the contract rate, which can push a deal that "cash-flows on paper" into DSCR rejection. Always model DSCR at qualifying-rate before writing offers on income property.

Net Operating Income (NOI) — What a rental building earns in a year after vacancy and operating costs, and before the mortgage.
Capitalization Rate (Cap Rate) — Net operating income divided by the purchase price, which is the annual return a rental property produces before any mortgage.
OSFI Mortgage Stress Test (B-20) — OSFI Guideline B-20 requires federally-regulated lenders to qualify mortgage borrowers at the greater of (a) the contract rate plus 2 percentage points or (b) the 5.

Related terms

See also