Lenders use DSCR to evaluate whether a multifamily property generates sufficient income to cover its debt obligations. The formula is simple: divide Net Operating Income by annual debt service. A DSCR of 1.20x means the property generates $1.20 of NOI for every $1.00 of annual debt payments. InstaLend’s multifamily term loan program states a minimum DSCR of 1.20x–1.25x for qualifying stabilized properties. However, lenders can apply different requirements, and DSCR is generally considered alongside other characteristics of the property and transaction.
For investors comparing multifamily investment loans, the underwriting process should be viewed as more than an interest-rate comparison. Lenders may review property value, occupancy, condition, rental income, expenses, loan amount, and the borrower’s overall transaction structure. A property can have strong income but still present challenges if its value or condition does not support the requested financing. Similarly, a property with adequate value may not support the proposed debt if its NOI is too low.
Investors searching for loans for multifamily homes can use DSCR as an initial screening tool before approaching lenders. Property owners considering a multifamily refinance loan can also compare current NOI against the proposed debt service to estimate whether the refinance is sustainable. This preliminary calculation does not replace lender underwriting, but it can help identify potential weaknesses early. Preparing accurate income and expense information can also make the financing discussion more productive.