DSCR Calculator

DSCR (Debt Service Coverage Ratio) measures whether a property’s rental income is sufficient to cover its mortgage and operating obligations. Lenders use DSCR to qualify investment property loans with no personal income documentation at all, on the basis that the property pays for itself.

Core formula: DSCR = Net Operating Income (NOI) ÷ Annual Debt Service

Where:

• Net Operating Income (NOI) = Gross Rental Income − Vacancy Loss − Operating Expenses
• Annual Debt Service = 12 × Monthly Mortgage Payment (principal + interest only; no taxes/insurance in most DSCR calculations)

NOI formula: NOI = (Gross Rent × 12) × (1 − Vacancy Rate) − Annual Operating Expenses

Operating expenses (typical for rental property):

• Property management: 8–10% of gross rent
• Maintenance/repairs: 5–10% of gross rent
• Insurance: 0.5–1.5% of property value
• Property taxes: per local rate
• Capital expenditure reserves: 5–10% of gross rent
• Total OpEx: typically 35–50% of gross rent (the “50% rule” for estimation)

What each variable means:

• DSCR > 1.0: income exceeds debt service; property cash-flows positively
• DSCR = 1.0: income exactly covers debt; zero cash flow surplus (break-even)
• DSCR < 1.0: income insufficient; owner must cover the shortfall from other sources

Lender DSCR requirements:

• Minimum DSCR for loan approval: 1.20–1.25× (most lenders)
• Preferred DSCR: 1.30–1.50× (better rates, lower down payment)
• Some lenders allow DSCR 1.0 with a larger down payment or higher rate

Worked example: Investment property: $350,000 purchase, 25% down ($87,500), loan $262,500 at 7.5% for 30 years.

Monthly payment = $1,836 → Annual debt service = $22,032 Gross annual rent = $2,400/month × 12 = $28,800 Vacancy (8%) = −$2,304 Operating expenses (45%) = −$12,960 NOI = $28,800 − $2,304 − $12,960 = $13,536

DSCR = $13,536 ÷ $22,032 = 0.61, well below 1.0, so this property does NOT qualify for a DSCR loan. Either the rent must increase significantly or the purchase price/loan amount must decrease.