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    DSCR Calculator

    Calculate your Debt Service Coverage Ratio (DSCR) to understand how lenders evaluate your commercial loan application.

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    DSCR Ratio

    1.25x

    Rating

    Above 1.25, Strong

    A DSCR above 1.25 is considered strong by most commercial lenders. This indicates the property generates enough income to comfortably service its debt with room for unexpected expenses.

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    What is DSCR?

    DSCR (Debt Service Coverage Ratio) measures how much cash flow a property generates relative to its debt obligations. Lenders use this ratio as a primary underwriting metric for commercial real estate loans. A higher DSCR means lower risk for the lender and generally results in better loan terms.

    The DSCR Formula

    DSCR equals net operating income divided by annual debt service. Annual debt service is the total of all principal and interest payments due in a twelve month period.

    DSCR = Net Operating Income / Annual Debt Service

    How to Calculate NOI

    Net operating income is the income left after paying all property operating expenses but before debt service. It does not include mortgage payments, depreciation, or income taxes.

    NOI = Gross Rental Income - Vacancy Loss - Operating Expenses

    Operating expenses include property taxes, insurance, maintenance, property management fees, and utilities paid by the owner. They do not include debt service.

    Worked Example

    A 10 unit apartment building collects $18,000 per month in gross rent, or $216,000 per year. Vacancy runs about 5 percent, so effective gross income is $205,200. Annual operating expenses (taxes, insurance, maintenance, and management) total $72,000, leaving an NOI of $133,200.

    The owner takes a $1,400,000 loan at 7.0 percent with a 25 year amortization. That loan produces annual debt service of roughly $118,740.

    NOI = $205,200 - $72,000 = $133,200
    DSCR = $133,200 / $118,740 = 1.12x

    A 1.12x DSCR clears the minimum threshold most lenders set at 1.0x but falls short of the 1.25x that earns the best terms. Reducing expenses or increasing rents would improve the ratio.

    What DSCR Do Lenders Require?

    Most commercial lenders require a minimum DSCR of 1.20x to 1.25x. DSCR loan programs for investment properties generally set a floor of 1.0x to 1.25x depending on property type and loan to value ratio. A ratio above 1.35x typically qualifies a borrower for the most competitive rates and terms.

    Frequently Asked Questions

    DSCR, or Debt Service Coverage Ratio, measures how much cash flow a property generates relative to its debt obligations. Lenders use it as a primary underwriting metric for commercial real estate loans. A higher DSCR means lower risk for the lender and generally results in better loan terms.

    Divide annual net operating income by annual debt service, which is the total principal and interest due over twelve months. A property with $133,200 in NOI and $118,740 in annual debt service has a DSCR of 1.12x. The calculator above does this for you.

    Most commercial lenders view 1.25x or higher as strong. A ratio between 1.0x and 1.25x meets some minimum thresholds but leaves little margin for vacancy or expense swings, and a ratio above 1.35x typically qualifies for the most competitive rates and terms.

    A DSCR below 1.0 means the property's income does not cover its debt payments, so the owner would need to fund the shortfall from other sources. Most lenders will not approve financing at this level without additional collateral or guarantor support.

    Most commercial lenders require a minimum DSCR of 1.20x to 1.25x. DSCR loan programs for investment properties generally set a floor of 1.0x to 1.25x depending on property type and loan to value ratio.

    Raise net operating income by increasing rents, reducing vacancy, or cutting operating expenses, or lower annual debt service by borrowing less, extending amortization, or securing a lower rate. Small changes in NOI or debt service can move the ratio meaningfully.