DSCR Calculator

DSCR (Debt Service Coverage Ratio) measures whether a property’s rental income is sufficient to cover its mortgage and operating obligations. Lenders use DSCR to qualify investment property loans — no personal income documentation required; the property pays for itself.

Core formula: DSCR = Net Operating Income (NOI) ÷ Annual Debt Service

Where:

• Net Operating Income (NOI) = Gross Rental Income − Vacancy Loss − Operating Expenses
• Annual Debt Service = 12 × Monthly Mortgage Payment (principal + interest only; no taxes/insurance in most DSCR calculations)

NOI formula: NOI = (Gross Rent × 12) × (1 − Vacancy Rate) − Annual Operating Expenses

Operating expenses (typical for rental property):

• Property management: 8–10% of gross rent
• Maintenance/repairs: 5–10% of gross rent
• Insurance: 0.5–1.5% of property value
• Property taxes: per local rate
• Capital expenditure reserves: 5–10% of gross rent
• Total OpEx: typically 35–50% of gross rent (the “50% rule” for estimation)

What each variable means:

• DSCR > 1.0 — income exceeds debt service; property cash-flows positively
• DSCR = 1.0 — income exactly covers debt; zero cash flow surplus (break-even)
• DSCR < 1.0 — income insufficient; owner must cover the shortfall from other sources

Lender DSCR requirements:

• Minimum DSCR for loan approval: 1.20–1.25× (most lenders)
• Preferred DSCR: 1.30–1.50× (better rates, lower down payment)
• Some lenders allow DSCR 1.0 with a larger down payment or higher rate

Worked example: Investment property: $350,000 purchase, 25% down ($87,500), loan $262,500 at 7.5% for 30 years.

Monthly payment = $1,836 → Annual debt service = $22,032 Gross annual rent = $2,400/month × 12 = $28,800 Vacancy (8%) = −$2,304 Operating expenses (45%) = −$12,960 NOI = $28,800 − $2,304 − $12,960 = $13,536

DSCR = $13,536 ÷ $22,032 = 0.61 — well below 1.0; this property does NOT qualify for a DSCR loan. Either the rent must increase significantly or the purchase price/loan amount must decrease.