Debt-Service Coverage Ratio

Use this calculator to determine your Debt-Service Coverage Ratio (DSCR), which is an examination of a borrower’s ability to repay the debt obligation based on the property’s income and performance. Most financing requires a score of 1.0 or higher.

The Debt-Service Coverage Ratio, or DSCR, is an important metric in determining whether your rental property is fit for cash-out refinancing. The goal of the metric is to inform the lender whether your incoming cash flow is sufficient to pay back your debt on an ongoing basis. Lenders use this figure as a checkpoint on how well your investment is performing and whether we should accept the risk of providing you a longer-term loan. The DSCR is not a concept unique to our lending, so feel free to use our calculator or explore other resources online to determine whether you have a qualifying ratio.


What does DSCR stand for?

DSCR is the abbreviation for ‘Debt Service Coverage Ratio’; a common metric in commercial lending used to determine whether an investment property is economically viable. This is often used as an alternative to a personal credit score for commercial investments, as it gives information pertinent to a specific property. Unlike homeownership, the objective of commercial mortgages is to finance profit-generating activities. If a property has good tenants who pay their rent on a consistent basis and low maintenance costs, taxes, etc., the lender should have confidence that the building will continue to generate cash flow, independent of your personal credit score.


How to Calculate DSCR?

The debt service coverage ratio calculator aggregates information about your property and your potential loan to determine your ratio. The primary calculation is relatively simple:

DSCR = NOI / Debt Service

DSCR: The Debt Service Ratio

NOI: Net operating income (monthly)

Debt Service: Monthly payment towards your loan


Our calculator is mostly focused on the net operating income, as the debt service is a product of your outstanding loan amount. When using the calculator, be honest with yourself. All of these figures will be confirmed prior to issuing a loan, so it’s important that you have an accurate accounting prior to getting started.


Calculating Net Operating Income (NOI)

Your net operating income is essentially your investment balance sheet before any loan payments. In our calculator we ask for Monthly Rent, annual taxes, annual insurance, and any annual fees. The calculation of NOI looks like this:

NOI = Monthly Rent – (Annual Taxes/12) – (Annual Insurance/12) – (Annual Fees/12)

This figure represents the amount of revenue you are generating on a monthly basis. A complex calculator would also include maintenance costs, tenant turnover rate, and more. Those factors will be considered in your application, but with 2-3 months of required seasoning verifying the property, income will be evident.


DSCR Requirements

Most lenders require a Debt-Service Coverage Ratio of 1.0. In simple terms, this means that your monthly income must be greater than your debt service (NOIDebt Service > 0). Having an acceptable DSCR alone is not enough to get your approval for cash-out financing, but it is an important step in the process and it proves that you have a viable investment property.