DSCR Calculator
Calculate Debt Service Coverage Ratio to determine if a property meets lender requirements. DSCR = NOI ÷ Annual Debt Service.
Annual net operating income
Total annual mortgage payments (P&I)
Typical lender requirement is 1.20-1.35x
What is DSCR?
The Debt Service Coverage Ratio (DSCR) measures a property's ability to cover its mortgage payments from its operating income. It's the most critical metric lenders use to assess loan risk.
DSCR Interpretation:
- DSCR > 1.25x: Property generates 25%+ more income than needed for mortgage. Considered safe by most lenders.
- DSCR = 1.00x: Property exactly covers its debt—no margin for vacancies or expenses. Very risky.
- DSCR < 1.00x: Property cannot cover its mortgage from operations. Negative cash flow.
Typical Lender Requirements:
- Conventional Loans: 1.20x - 1.25x minimum
- SBA 504 Loans: 1.15x - 1.25x
- Bridge Loans: May allow 1.00x or less
- CMBS Loans: 1.25x - 1.35x typical
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Frequently Asked Questions
Can I use projected rental income for DSCR?
For acquisition loans, lenders usually use the lower of current rent roll or market rents. For stabilization/bridge loans, they may consider pro-forma income.
What happens if DSCR drops below 1.0?
A DSCR below 1.0 means the property is losing money (cash flow negative). You will have to feed the property from your own pocket to pay the mortgage.
Is 1.25x DSCR a hard rule?
It is a strong guideline. Some lenders accept 1.20x in top-tier markets, while risky assets might require 1.40x.
Does DSCR include interest-only payments?
Yes. If you have an interest-only period, the DSCR is calculated using that lower payment, making it easier to qualify initially.
How can I improve my propertys DSCR?
Increase income (raise rents, adding fees) or decrease expenses (contest taxes, utility efficiency). Alternatively, put more money down to lower the loan amount.