Debt Service Coverage Ratio (DSCR) Calculator
Calculate DSCR for rental properties or businesses.
Lenders use this ratio to determine if your income covers your debt payments.
What Is Debt Service Coverage Ratio?
The Debt Service Coverage Ratio (DSCR) is a financial metric used by lenders to measure whether your income is sufficient to cover your debt payments. It is widely used for rental property loans and business financing.
The Formula
DSCR = Net Operating Income (NOI) ÷ Total Annual Debt Service
Net Operating Income (NOI) = Annual gross rental income minus operating expenses (not including mortgage payments).
Total Annual Debt Service = All principal + interest payments due in a year.
How Lenders Interpret DSCR
| DSCR Value | Meaning |
|---|---|
| Below 1.0 | Negative cash flow — income does not cover debt |
| 1.0 | Break-even — exactly covers debt, no cushion |
| 1.1 – 1.2 | Minimal buffer — most lenders require at least 1.20 |
| 1.25 | Standard requirement for most commercial lenders |
| 1.5+ | Strong coverage — attractive to lenders |
| 2.0+ | Excellent — very low risk |
Most conventional lenders require a DSCR of 1.25 or higher. Some portfolio lenders will accept 1.10–1.20 for strong borrowers.
Practical Example
A rental property generates $36,000/year in gross rent. Operating expenses (taxes, insurance, maintenance, management) total $12,000/year. Annual mortgage payment is $18,000.
- NOI = $36,000 − $12,000 = $24,000
- DSCR = $24,000 ÷ $18,000 = 1.33
This property qualifies under standard lending criteria.
Tips
- Vacancy should be factored into income (typically use 90–95% of gross rent).
- Higher DSCR gives you a buffer if rents drop or expenses rise.
- Improving DSCR: increase rents, reduce expenses, or pay down debt.
- DSCR loans do not require personal income verification — the property qualifies itself.