How DSCR works on Phoenix apartment loans
Debt service coverage ratio, or DSCR, is the number most apartment lenders look at before they look at you. It compares the property’s net operating income to the annual loan payment. Kelly Dutton arranges multifamily and apartment loans at OneClick Commercial Funding for investors across Phoenix and the rest of the country.
A DSCR of 1.00 means the property’s income exactly covers the payment. Most lenders want a cushion above that. The exact minimum depends on the lender, the asset, and the rate environment. This article does not quote a required ratio, because that number moves.
The math, without the spreadsheet
Net operating income is rent and other income, minus operating expenses, before debt service. It is not the same as cash flow after the mortgage. Vacancy, taxes, insurance, repairs, and management all come out first. A rent roll that ignores vacancy will overstate DSCR and get corrected in underwriting.
The loan payment used in the test is not always today’s interest-only quote. Some lenders stress the payment at a higher rate or require amortization. A file that “covers” on an interest-only teaser can fail the lender’s actual test.
What a thin ratio does to the loan amount
If income does not cover the payment at the amount you want, the lender cuts the loan, not the ratio. That means a larger down payment or a lower purchase price. Kelly would rather show you that gap on the first call than after an appraisal is ordered.
Value-add plans, where you raise rents after renovations, are underwritten on current income unless the lender has a specific rehab program. Future rent is a story. In-place rent is the number.
Phoenix context
Garden apartments in Phoenix and the East Valley trade on local rents, taxes, and insurance, not a national average. Bring a trailing twelve-month statement, not a pro forma. The commercial loan document checklist covers the rest of the package.
Fannie Mae Multifamily publishes how agency apartment financing is structured. Many smaller Phoenix acquisitions never reach that lane. Local and regional lenders use the same DSCR idea with different overlays.
If the property needs a short hold before a permanent loan, a commercial bridge loan is a different conversation. Bridge pricing is not a DSCR product.
What this is not
This is not a commitment to lend. Loan terms, amounts, and rates are not guaranteed. Every file still goes through lender approval, credit review, and underwriting.
About the author
Kelly Dutton is a senior commercial mortgage broker at OneClick Commercial Funding in Phoenix. She arranges financing for business owners and real estate investors. She is a broker, not a lender. Read more on the About Kelly Dutton page.
Next step
Call (480) 363-1412 or visit kelly-dutton.com to request a financing call with Kelly Dutton at OneClick Commercial Funding.