Debt Service Coverage Ratio (DSCR) Calculator
Total rent collected per month
Taxes, Insurance, HOA, Management
Principal, Interest, Taxes, Insurance, Association Dues
DSCR Score
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Net Operating Income (NOI):
$0.00
Monthly Cash Flow:
$0.00
What is the Debt Service Coverage Ratio (DSCR)?
The Debt Service Coverage Ratio (DSCR) is a critical financial metric used by real estate lenders to evaluate the income-producing potential of a property. Unlike traditional residential loans that focus on your personal income and debt-to-income ratio, DSCR loans focus almost entirely on the property's ability to pay for itself.
Simply put, the ratio compares the property's Net Operating Income (NOI) against its Total Debt Service (the mortgage payments and associated costs).
The DSCR Formula
The formula for calculating DSCR is straightforward:
DSCR = Net Operating Income / Total Debt Service
Where:
- Net Operating Income (NOI): This is your Gross Rental Income minus Operating Expenses (vacancy, property management fees, repairs, etc.). Note: Some lenders simplify this by just taking Gross Rent vs. PITIA (Principal, Interest, Taxes, Insurance, Association dues).
- Total Debt Service: This includes the principal and interest payments on your loan, plus taxes and insurance if they are escrowed (PITIA).
Interpreting Your DSCR Score
Understanding your score is vital for securing a loan. Here is how lenders typically view the results:
- DSCR < 1.00 (Negative Cash Flow): The property generates less income than it costs to finance. You would have to pay out of pocket every month to keep the loan current. Most lenders will reject this unless you have significant reserves or a high down payment.
- DSCR = 1.00 (Break-Even): The property earns exactly enough to cover its debt. There is no profit margin for repairs or vacancies.
- DSCR 1.00 – 1.19 (Moderate Risk): The property is profitable, but margins are tight. Lenders may require a higher interest rate or a larger down payment (e.g., 25-30%).
- DSCR > 1.25 (Strong): This is the "gold standard" for most commercial and investment lenders. It indicates the property generates 25% more income than the debt obligation, providing a safety net for vacancies and repairs.
Calculation Example
Let's say you are buying a rental property with the following numbers:
- Gross Rent: $2,500 / month
- Operating Expenses (Taxes/Ins/HOA): $500 / month
- Proposed Mortgage Payment: $1,500 / month
Step 1: Calculate NOI
$2,500 (Rent) – $500 (Exp) = $2,000 NOI
Step 2: Divide by Debt
$2,000 / $1,500 = 1.33
In this example, a DSCR of 1.33 is excellent, and you would likely qualify for competitive financing terms.