DSCR calculator
Debt service coverage ratio shows how many times the property’s income covers its loan payments. Lenders use it to decide whether a rental can carry the mortgage on its own.
Debt service coverage ratio
1.24
Covers the loan, but under the 1.25 many lenders ask for
- Net operating income, yearly
- $22,320
- Loan payments, yearly
- $17,963
- Largest loan at a 1.25 ratio
- $223,658
How it is calculated
DSCR = Net operating income ÷ Annual debt service
- Net operating income (NOI)
- A year of collected rent minus operating expenses, before any loan payments.
- Annual debt service
- Twelve months of principal and interest payments on the loan.
Worked example
- A rental brings in $2,800 a month. After 5% vacancy and $800 a month of operating expenses, net operating income is $22,320 a year.
- A $225,000 loan at 7% over 30 years costs $1,496.93 a month, which is $17,963 a year.
- $22,320 ÷ $17,963 = 1.24. The property earns $1.24 for every $1.00 of loan payment.
- If the lender requires 1.25, the income supports a loan of about $223,700 at the same rate and term, so this deal would need a slightly larger down payment.
What DSCR do lenders want?
A ratio of 1.00 means income exactly matches the loan payments, with nothing left over. Below 1.00 the property does not cover its own debt.
Many lenders set their minimum around 1.20 to 1.25 for investment property loans, and offer better pricing as the ratio rises. Requirements differ between lenders and loan programs, and some count taxes, insurance and HOA dues inside the payment instead of inside expenses, so ask your lender how they calculate it.
If your ratio falls short, the usual fixes are a larger down payment, a lower rate, a longer term, or evidence of higher market rent.
Common questions
What does a DSCR of 1.25 mean?
The property’s net operating income is 1.25 times its yearly loan payments. For every dollar owed to the lender, the property produces a dollar and twenty-five cents.
What is a DSCR loan?
A DSCR loan is an investment property mortgage approved mainly on the property’s rental income instead of the borrower’s personal income. The lender checks that rent covers the payment by a set margin.
How can I improve my DSCR?
Raise net operating income by increasing rent or cutting expenses, or lower the debt service by borrowing less, getting a lower interest rate or choosing a longer loan term.
Do all lenders calculate DSCR the same way?
No. Some divide gross rent by the full payment including taxes, insurance and association dues. Others use net operating income over principal and interest, as this calculator does. Check the method with your lender.