Real Estate & Credit
DSCR Calculator
Check whether a property income covers its debt payments.
DSCR Calculator
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How it works
The debt service coverage ratio divides net operating income by the annual debt payment. A DSCR of 1.25 means the property earns 25% more than it needs to pay the loan, giving lenders a cushion.
Banks quote DSCR as their core underwriting number for rental property loans: most want 1.25 or better on the stabilized income. It is a lender view of the deal, so knowing your number before you apply saves time.
Formula
DSCR = NOI / Annual debt service
Below 1.0 the income does not cover the payments; above 1.0 there is a cushion.
Worked example
Example: a property earns $24,000 in NOI and the annual mortgage payment is $18,000. DSCR = 24000 / 18000 = 1.33, which clears the typical 1.25 bank requirement.
WORKED EXAMPLE — DEFAULT INPUTS
What to know
Lenders build a safety margin into their DSCR requirement because income fluctuates. A 1.25 requirement means the property must earn 25% more than the payment, absorbing vacancy and repair shocks without tapping the borrower reserves. Higher LTV loans often demand a higher DSCR to compensate.
Raising the down payment is the fastest way to improve DSCR, because a smaller loan means a smaller payment against the same income. Before you apply, model how the ratio moves with the down payment size and the loan term.
For multi-unit properties, banks underwrite on the stabilized vacancy-adjusted income, not the full-lease number. Run your DSCR with a realistic vacancy allowance and a maintenance reserve built into operating costs, and you will rarely be surprised at the closing table.
Re-run the coverage ratio with the property empty for two months a year; if the number still clears the bank minimum, your underwriting will survive the vacancy reality.
FAQ
What DSCR do lenders want?
Typically 1.25 or higher for rental properties, and 1.15-1.2 for some owner-occupied commercial loans. Requirements vary by lender and asset type.
How do I improve my DSCR?
Raise NOI (rent, cut operating costs) or reduce the loan payment (bigger down payment, lower rate, longer term).
Does DSCR use gross or net income?
Net operating income — gross rent minus vacancy allowance and operating costs, before debt and taxes.
What if my DSCR is below 1?
The property does not generate enough income to cover the loan by itself. A lender will typically decline, or you must qualify on other income or a larger down payment.