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DSCR Loan Calculator

Calculate Debt Service Coverage Ratio for income properties, forecast cash flow, and check if you meet lender requirements.

Calculator

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Results

Effective Gross Income
$0.00
Net Operating Income (NOI)
$0.00
Operating Expense Ratio
0.0%
Monthly Loan Payment
$0.00
Annual Debt Service
$0.00
Debt Service Coverage Ratio (DSCR)
0.00
Annual Cash Flow
$0.00
Monthly Cash Flow
$0.00

NOI vs Annual Debt Service

Net Operating Income$0.00
Annual Debt Service$0.00

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.

Sources & References

Fannie Mae - Investment Property Guidelines
https://singlefamily.fanniemae.com/originating-underwriting/mortgage-products/investment-properties
Commercial Real Estate - DSCR Requirements
https://www.investopedia.com/terms/d/dscr.asp

What is Debt Service Coverage Ratio?

Debt Service Coverage Ratio (DSCR) measures a property's ability to cover its debt obligations through its income, calculated as: DSCR = Net Operating Income Ă· Total Debt Service.

Net Operating Income (NOI) is annual rental income minus operating expenses (property taxes, insurance, maintenance, property management, utilities, HOA fees, vacancy allowance)—excluding mortgage payments.

Total Debt Service is annual mortgage payments (principal + interest).

For example, a rental property generating $50,000 NOI with $40,000 annual mortgage payments has a DSCR of 1.25 ($50,000 Ă· $40,000).

This means the property generates 25% more income than needed to cover debt payments.

Lenders use DSCR to assess investment property loans: DSCR ≥ 1.25 is considered strong (property generates 25%+ cushion); DSCR = 1.0-1.24 is acceptable but tight; DSCR < 1.0 means property loses money (income insufficient to cover debt).

Most lenders require minimum DSCR of 1.20-1.25 for investment properties, compared to traditional mortgages that focus on borrower income.

DSCR loans (also called "no-doc" or "investor cash flow" loans) qualify based solely on property income, not borrower's personal income or employment—ideal for self-employed investors or those with multiple properties.

These loans typically require 15-25% down payment, have interest rates 0.5-2% higher than conventional mortgages, and need DSCR of 1.0-1.25+ depending on lender.

The ratio is crucial for real estate investors because it indicates: cash flow sustainability, risk of default during vacancies or repairs, ability to handle interest rate increases, and buffer for unexpected expenses.

Higher DSCR provides greater financial security and easier refinancing options.

Improving Your DSCR

Real estate investors can improve DSCR through strategies that increase income or reduce debt service.

To increase Net Operating Income: raise rents to market rates (research comparable properties—even 5-10% increases significantly impact NOI), reduce vacancy rates through better marketing, tenant screening, and property management, decrease operating expenses by shopping for insurance, handling maintenance efficiently, and reducing utility costs if landlord-paid, and add value through renovations that justify higher rents (kitchen/bathroom updates, additional bedrooms, in-unit laundry).

For example, increasing monthly rent from $2,000 to $2,200 adds $2,400 annual NOI, improving DSCR from 1.15 to 1.25 on a property with $35,000 debt service.

To reduce debt service: refinance when interest rates drop (reducing rate from 7% to 5.5% on $400,000 loan saves $6,000+ annually), extend loan term to reduce monthly payments (though this increases total interest paid), pay down principal to reduce loan balance, or negotiate seller financing with lower payments.

Consider the strategic implications: making larger down payment reduces loan amount and debt service—putting 25% down versus 20% on a $500,000 property reduces annual debt service by $2,000-3,000, improving DSCR from 1.18 to 1.28.

This can qualify you for better loan terms, creating a virtuous cycle.

For properties with DSCR below 1.25, analyze whether improvements are feasible or if the property isn't viable as a rental.

Sometimes converting to short-term rentals (Airbnb) can increase income 30-70%, dramatically improving DSCR, though with higher management burden.

Portfolio considerations matter too: lenders may consider DSCR across all properties when evaluating new loans, so maintaining strong ratios on existing properties facilitates expansion.

Track DSCR annually to ensure properties remain profitable and adjust strategies as market conditions change.

The goal is maintaining DSCR above 1.25 to provide cash flow cushion for vacancies, repairs, and market fluctuations while building long-term wealth through rental income and appreciation.

Key Financial Terms

Understand the essential concepts behind this calculator

DSCR (Debt Service Coverage Ratio)

A measure of cash flow available to pay debt obligations, calculated as annual net operating income divided by annual debt payments.

Learn more →
View all financial terms in our glossary →

Frequently Asked Questions

Common questions about the DSCR Loan Calculator

DSCR stands for Debt Service Coverage Ratio. It measures a property's ability to cover its debt payments with its income.
Learn More

DSCR Loan Requirements

Most lenders require minimum DSCR of 1.20-1.25 for investment property loans, with rates typically 0.5-2% higher than owner-occupied mortgages.
→Source: Fannie Mae - Investment Property Lending Guidelines(2024)

Net Operating Income Calculation

Industry standard is to reserve 5-10% of gross rents for vacancy and 1-2% of property value annually for maintenance when calculating NOI.
→Source: National Association of Residential Property Managers - Standards(2024)