When might a lender be hesitant to approve a borrower with a high Debt Service Coverage Ratio?

A lender may be hesitant to approve a borrower with a high Debt Service Coverage Ratio (DSCR) if it indicates that the borrower has insufficient cash flow to cover their debt obligations. The Debt Service Coverage Ratio is a measure used to assess the ability of a borrower to generate enough income to cover their debt payments. A high ratio suggests that the borrower is likely generating more income than is necessary to cover their debt obligations.

However, if this high ratio arises from a situation where the borrower's income is not stable or reliable, or if they hold significant debt that could potentially push them into a negative cash flow situation, it raises concerns for the lender. This could indicate that, despite appearing to have enough income on paper, the borrower's financial situation may not be as secure as it seems, leading to apprehension about their ability to make payments reliably.

Contextually, other scenarios presented, such as substantial rental income, a stable employment history, or holding a conventional mortgage, typically reflect positive financial indicators. These factors would generally enhance a borrower's profile rather than cause concern for a lender considering approval.