Calculators

DSCR Calculator

Debt service coverage ratio for a rental or commercial property, and the largest loan its income will support.

How it works

DSCR asks whether a property's own income can pay its mortgage. Net operating income is rent after vacancy and operating expenses, but before the loan payment. Annual debt service is twelve months of principal and interest, or interest alone on an interest-only loan. A ratio of 1.00 means the property exactly breaks even; lenders want a cushion above that. Run the formula backwards and it gives the largest loan whose payment the NOI still covers at the lender's minimum.

DSCR = net operating income ÷ annual debt service
NOI
Gross rent − vacancy − operating expenses, per year
Debt service
Twelve monthly loan payments
1.25×
A common commercial lender minimum
Max loan
Present value of (NOI ÷ minimum DSCR) paid monthly over the amortization

Worked example

A small retail strip with $180,000 NOI, financed with a $1.5M loan at 7% on a 25-year amortization, against a 1.25× lender minimum.

  1. 1Monthly payment on $1,500,000 at 7% over 300 months: $10,602
  2. 2Annual debt service: $10,602 × 12 = $127,220
  3. 3DSCR: $180,000 ÷ $127,220 = 1.41×
  4. 4Payment the NOI supports at 1.25×: $180,000 ÷ 1.25 ÷ 12 = $12,000 a month
  5. 5Loan that payment amortizes: about $1,698,000

1.41× clears the 1.25× minimum. The property could support roughly $198,000 more debt.

Frequently asked questions

What is a good DSCR?

Most commercial lenders want 1.20× to 1.35×, depending on property type. Stable multifamily sits at the low end, while hotels and special-purpose properties need more. DSCR rental loans for 1–4 unit investors often go down to 1.00×, and some go below it at a higher rate and lower leverage. Anything above 1.50× is comfortable and usually means leverage, not income, will be the limit.

How is a DSCR loan different from a conventional mortgage?

A DSCR loan qualifies the property rather than the person. The lender looks at the rent against the payment, including taxes, insurance and HOA on residential DSCR loans, instead of your tax returns and debt-to-income ratio. That suits investors with complex income or many properties, at the cost of a higher rate and usually a 20–25% down payment.

What counts as an operating expense in NOI?

Property taxes, insurance, repairs and maintenance, property management, utilities the owner pays, landscaping, and a replacement reserve. The mortgage payment, depreciation, income tax and big one-off capital projects are not operating expenses. Leaving out management because you self-manage is the most common way investors overstate NOI; lenders add it back in, usually at 3–8% of income.

Why do lenders look at both DSCR and loan-to-value?

They protect against different risks. DSCR asks whether the income pays the loan today; loan-to-value asks whether selling the property would repay it if income fails. The approved loan is the smallest of the amounts allowed by DSCR, LTV and, for many commercial lenders, debt yield.

Related calculators

More in Finance