DSCR Calculator
Quick answer
Most DSCR lenders target roughly 1.20–1.25× on the qualifying payment (program-specific). Below ~1.0× the property does not cover debt from operations; between 1.0× and 1.15× you have almost no cushion for a vacancy month.
For a related estimate, see Cash On Cash Return Calculator.
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Formula and inclusions
DSCR = NOI ÷ annual debt service. NOI = effective gross income − operating expenses (excludes financing). Debt service = principal + interest + any required escrows counted in the loan’s underwriting (lender-specific). Excluded: your salary, depreciation, and principal paydown as “profit”—DSCR is coverage, not return.
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DSCR is NOI ÷ annual debt service—the property’s ability to pay the loan before your personal income is counted. Use it when you are pricing non-owner-occupied loans or stress-testing whether a +1% rate in underwriting kills the deal.
How to use this calculator
- Use lender-grade NOI: Gross rent minus vacancy and operating expenses—same definition your lender uses in the worksheet, not your optimistic spreadsheet.
- Match the payment in the denominator: IO, amortizing, escrows, and private money interest-only periods change debt service—use the payment underwritten, not the teaser.
- Convert ratio to dollars: 1.25× on $30k NOI means debt service cap ~$24k—seeing the ceiling in dollars beats staring at “1.25.”
Hidden assumption: qualifying rate
Loans are often stressed at a higher rate or shorter amort than the starting coupon—your “actual” DSCR can look fine while underwriting DSCR fails.
Real-world examples
- Case study: $28,400 NOI, $22,500 debt service: DSCR ≈ 1.26×—likely inside the band for many programs. Raise debt service by $2,400 (rate shock) → ~1.16×—still alive but thin. Another $2,400 → ~1.05×—functionally broke for a lender even if rent still covers the check in one month.
- Rent shock: −12% EGI: If NOI drops from $28.4k to ~$25k on the same debt service, DSCR falls to ~1.11×—same loan, same tenant quality, different outcome. That is why fixed expenses hurt when rent dips.
What to decide
If DSCR is only strong because you used pro forma rent, you are one inspection away from a denial. Push price down, raise equity, or buy a rate buydown—do not “fix” it with optimism. Pair with cap rate for unlevered yield and cash flow for what you actually keep.
FAQ
What DSCR do lenders want on investment property?
Many DSCR programs look for roughly 1.20–1.25× or higher on the note rate stress test—exact floors move with program, LTV, and reserves.
Is DSCR the same as debt-to-income (DTI)?
No. DTI is personal income versus obligations; DSCR is property NOI versus debt service on that property.
Do I use gross rent or NOI?
DSCR uses NOI (after realistic vacancy and operating expenses), not gross rent—using gross inflates the ratio.
What if my DSCR is barely above 1?
You have almost no cushion for rent dips or expense spikes—either improve NOI, reduce leverage, or negotiate price.
Does a rate change affect DSCR?
Yes—higher P&I lowers coverage even if rent is unchanged, which is why lenders stress at the qualifying rate.