Debt Service Coverage Ratio Calculator
Calculates the Debt Service Coverage Ratio (DSCR) by dividing a property's NOI by its annual mortgage payment. Lenders use DSCR to assess whether a property generates enough income to safely repay the loan.
About this calculator
DSCR measures how many times over a property's net operating income covers its total annual debt service. The formula is: DSCR = NOI / Annual Debt Service, where annual debt service is the total of 12 monthly mortgage payments. The monthly payment itself is calculated using the standard amortization formula: M = P × [r(1+r)^n] / [(1+r)^n − 1], where P is the loan amount, r is the monthly interest rate (annual rate / 12), and n is the total number of payments (loan term in years × 12). A DSCR of 1.0 means income exactly covers debt; lenders typically require 1.20–1.25 as a minimum cushion. A DSCR below 1.0 indicates the property cannot service its own debt without outside income.
How to use
A property has an NOI of $72,000/year. The loan is $600,000 at 7% interest over 25 years. Step 1: Monthly rate r = 0.07 / 12 = 0.005833. Step 2: n = 25 × 12 = 300 payments. Step 3: Monthly payment = $600,000 × [0.005833 × (1.005833)^300] / [(1.005833)^300 − 1] ≈ $4,243. Step 4: Annual debt service = $4,243 × 12 = $50,916. Step 5: DSCR = $72,000 / $50,916 ≈ 1.41. A DSCR of 1.41 comfortably exceeds the typical 1.25 lender threshold.
Frequently asked questions
What DSCR do most commercial lenders require for loan approval?
Most commercial lenders require a minimum DSCR of 1.20 to 1.25, meaning the property must generate 20–25% more income than its debt payments. Some lenders in high-risk asset classes or volatile markets demand 1.35 or higher. The cushion protects lenders if income dips due to vacancy or rising expenses. Borrowers with DSCR below 1.20 may face loan denial, require additional collateral, or need to make a larger down payment to reduce debt service.
How can I improve a low DSCR before applying for a commercial loan?
You can improve DSCR by increasing NOI or reducing annual debt service. On the income side, raising rents, reducing vacancy, or adding ancillary income streams all boost NOI directly. On the debt side, a larger down payment lowers the loan balance, and securing a lower interest rate or longer amortization period reduces monthly payments. Even a modest increase in NOI from tightening operating expenses can meaningfully shift DSCR above a lender's threshold.
What is the difference between DSCR and loan-to-value ratio in real estate lending?
DSCR and loan-to-value (LTV) are complementary but distinct underwriting metrics. LTV compares the loan balance to the property's market value, measuring collateral safety—typically lenders want LTV below 75–80%. DSCR, in contrast, measures cash flow safety by comparing income to debt payments, regardless of property value. A property can have a low LTV but a poor DSCR if it is under-rented, and vice versa. Lenders evaluate both simultaneously; a deal must pass both tests to be approved.