DSCR Calculator (Debt Service Coverage Ratio)
Calculate the Debt Service Coverage Ratio for your investment property or business to determine cash flow health and loan eligibility.
$
Total rental or business revenue per year.
$
Taxes, insurance, maintenance, HOA, etc.
$
Total Principal & Interest payments per year.
Net Operating Income (NOI):
$0.00
Your DSCR Ratio
0.00
Pending
What is Debt Service Coverage Ratio (DSCR)?
The Debt Service Coverage Ratio (DSCR) is a critical financial metric used by lenders, real estate investors, and corporate finance analysts to measure an entity's ability to pay its current debt obligations with its available cash flow.
In the context of real estate investing, specifically for DSCR loans, this ratio compares the property's Net Operating Income (NOI) to its annual mortgage debt service. It tells the lender whether the property generates enough income to cover the loan payments.
The DSCR Formula
The standard formula used in this calculator is:
DSCR = Net Operating Income (NOI) / Total Debt Service
- Net Operating Income (NOI): This is your Gross Annual Income minus Annual Operating Expenses (excluding the mortgage).
- Total Debt Service: The sum of all principal and interest payments due on the loan for the year.
Interpreting Your DSCR Result
Understanding the output is vital for securing a loan or analyzing an investment:
DSCR < 1.0 (Negative Cash Flow)
A ratio below 1.00 indicates that the property or business has negative cash flow. The income generated is insufficient to cover the debt payments. For example, a DSCR of 0.95 means you only have enough income to pay 95% of your debt. Lenders rarely approve loans with a DSCR under 1.0 without significant compensating factors.
DSCR = 1.0 (Break-Even)
A ratio of exactly 1.00 means the entity is breaking even. All income goes directly to operating expenses and debt payments, leaving no profit.
DSCR > 1.25 (Healthy)
Most commercial lenders and DSCR loan programs look for a ratio between 1.20 and 1.25. A DSCR of 1.25 means the property generates 25% more income than is required to pay the debt. This provides a "cushion" for vacancies or unexpected repairs.
Frequently Asked Questions
What expenses should be included in Operating Expenses?
Include property taxes, insurance, homeowners association (HOA) fees, property management fees, maintenance reserves, and utilities (if landlord-paid). Do NOT include the mortgage payment here, as that is part of the Debt Service.
Can I get a DSCR loan with a ratio of 1.0?
Yes, some lenders offer "low DSCR" or "no-ratio" loans, but they typically require higher down payments (25-30%) and charge higher interest rates to offset the risk.
Why do lenders prefer DSCR over DTI?
Debt-to-Income (DTI) relies on the borrower's personal income. DSCR relies on the asset's income. For investment properties, lenders prefer DSCR because it assesses the profitability of the asset itself, allowing investors to scale without being limited by personal income caps.