DSCR Calculator - Debt Service Coverage Ratio for Real Estate
Calculate Debt Service Coverage Ratio (DSCR) for investment properties. Determine if your rental property income covers loan payments and meets lender requirements.
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NOI vs Annual Debt Service
What is DSCR?
Debt Service Coverage Ratio (DSCR) measures whether a property generates enough income to cover loan payments. Formula: DSCR = Net Operating Income (NOI) / Annual Debt Service. Example: Property with $50K NOI and $40K annual debt = 1.25 DSCR. This means the property generates $1.25 for every $1 of debt payments. DSCR is the primary approval criterion for investment property loans.
DSCR Requirements by Lender
Minimum DSCR: 1.20-1.35 (most common: 1.25). Preferred DSCR: 1.50+ (better rates, easier approval). Below 1.0: Property doesn't cover debt (automatic denial). DSCR ≥ 1.25 qualifies for traditional investment loans. DSCR 1.10-1.24 may qualify for DSCR loans (no income verification). DSCR 1.00-1.09 limited to specialized DSCR lenders. Higher DSCR = better rates and terms.
What is Net Operating Income (NOI)?
NOI = Gross Rental Income - Vacancy - Operating Expenses. Gross income: Total annual rent from property. Operating expenses: Property taxes, insurance, HOA, maintenance, property management, utilities (if landlord-paid). Does NOT include: Debt service (loan payments), depreciation, income taxes, capital improvements. NOI is the critical metric used to calculate DSCR and property value (via cap rate).
DSCR Loans (No Income Verification)
DSCR loans qualify based on property cash flow alone - no W-2s, tax returns, or pay stubs required! Minimum DSCR: Usually 1.0-1.20 (lower than traditional). Interest rates: 0.5-1.5% higher than traditional loans (8-9% vs 7-8%). Down payment: 20-25% minimum. Ideal for: Self-employed, foreign nationals, high-income earners with complex tax returns, investors with many properties. Can close faster with less paperwork.
How to Improve Low DSCR
If your DSCR is below 1.25, try these: (1) Increase down payment to reduce loan amount and monthly payment. (2) Increase rental income - raise rents to market rates. (3) Reduce operating expenses - self-manage to save 8-10%, appeal property taxes, shop insurance. (4) Consider DSCR loan with 1.10 minimum instead of traditional 1.25. Example: $400K loan with 1.11 DSCR → increase down payment by $45K to hit 1.25 DSCR.
Operating Expense Ratio
Operating Expense Ratio = Operating Expenses / Gross Rental Income. Typical range: 35-50% of gross rent. Lower is better - more income available for debt service. Varies by property type, age, location, and who pays utilities. Example: $60K gross rent, $18K expenses = 30% ratio (excellent). Budget conservatively: use 50% rule (assume 50% of rent goes to expenses) when analyzing deals.
DSCR vs Cash-on-Cash Return
DSCR measures loan approval (property income vs debt). Cash-on-Cash measures investor return (cash flow vs down payment). You can have low DSCR but high cash-on-cash (small loan, big down payment). Or high DSCR but low cash-on-cash (big loan, small down payment). Example: 1.25 DSCR with $100K down and $3,600/year cash flow = 3.6% cash-on-cash. DSCR gets you approved; cash-on-cash determines your actual return.
Common DSCR Mistakes
⚠️ Not calculating DSCR before making offer - know max affordable loan from expected NOI first. Overestimating rental income - use conservative market rents, not seller's inflated numbers. Underestimating expenses - budget 35-50% of gross rent, get actual P&L from seller. Forgetting property management - even if self-managing, budget 8-10% (lenders require this). Confusing DSCR with cash-on-cash return. Not considering DSCR loans (1.10 minimum) when traditional loan requires 1.25.
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⚠️ Important Disclaimer
This DSCR Calculator - Debt Service Coverage Ratio for Real Estate provides estimates for educational and informational purposes only. Actual results may vary significantly based on individual circumstances, market conditions, regulatory changes, and other factors beyond the scope of this calculator.
The calculations and projections provided are based on assumptions and historical data that may not reflect future performance.Past performance does not guarantee future results.
This tool is not financial advice, tax advice, legal advice, or investment advice. For personalized guidance tailored to your specific situation, please consult with qualified professionals including:
- Certified Financial Planner (CFP)
- Certified Public Accountant (CPA) for tax matters
- Licensed attorney for legal matters
- Registered Investment Advisor (RIA) for investment decisions
Data Accuracy: All data sources, statistics, and rates were verified as accurate as of October 2025. Tax rates, market conditions, and other financial data change over time. Always verify current rates and consult official sources.
No Warranties: While we strive for accuracy, we make no warranties or guarantees regarding the accuracy, completeness, or reliability of any information provided. Use this tool at your own risk.