DSCR Loan Calculator
Calculate the debt service coverage ratio on a rental property, the maximum loan it supports at a lender's minimum DSCR, and the rent needed to qualify.
How to use this calculator
- 1Enter gross monthly rent and a realistic vacancy allowance rather than an optimistic one.
- 2Enter monthly operating expenses — taxes, insurance, HOA, management and maintenance — but not the mortgage.
- 3Enter the loan you want, its rate and term, and the minimum DSCR your lender requires.
- 4If the ratio falls short, use the maximum-loan and required-rent figures to see which lever closes the gap.
How the calculation works
DSCR = net operating income ÷ annual debt service. NOI = (gross rent × (1 − vacancy)) − operating expenses- NOI
- Income after vacancy and operating costs, but before the mortgage — the mortgage is what it is being measured against
- debt service
- Annual principal and interest on the loan
- DSCR
- Above 1.0 the property covers its debt; most lenders want 1.20–1.25
The mortgage payment is deliberately excluded from operating expenses. Including it would double-count, since debt service is the denominator of the ratio.
Lenders commonly underwrite with their own vacancy assumption and a market rent from an appraiser's rent schedule rather than the actual lease, so a deal that works on your numbers can still fail on theirs.
DSCR excludes capital expenditure — roofs, boilers, turnover costs. A property at exactly 1.0 covers the mortgage and nothing else, which is not the same as being self-sustaining.
Worked example
$3,200 rent against a $320,000 loan
- 1.Effective rent after 5% vacancy is $3,040, and after $700 of expenses the NOI is $2,340 a month — $28,080 a year.
- 2.The payment on $320,000 at 7.5% over 30 years is about $2,237, or $26,850 a year.
- 3.DSCR = $28,080 ÷ $26,850 ≈ 1.05.
- 4.That clears 1.0 but falls short of a 1.25 requirement, so the loan would need to be smaller or the rent higher.
Result: DSCR about 1.05 — covers the debt but misses a 1.25 threshold
What a DSCR loan is
A DSCR loan qualifies the property rather than the borrower. Instead of tax returns, pay stubs and a debt-to-income calculation, the lender asks a single question: does the rent cover the mortgage, with a margin?
That makes it the standard product for investors whose tax returns understate their income — which, thanks to depreciation and expense deductions, is most serious real estate investors — and for anyone whose personal debt-to-income ratio is already stretched across several properties. There is generally no limit on how many properties you can finance this way, which is the other reason portfolios are built on them.
The trade-offs are real: rates typically run one to two points above owner-occupied conventional mortgages, down payments are usually 20–25%, and prepayment penalties are common in the first three to five years.
Reading the ratio honestly
DSCR is net operating income divided by annual debt service, and the number means something specific at each level.
- Below 1.0 — the rent does not cover the mortgage. The property loses money monthly before any repair. Some lenders will still lend at 0.75–1.0 at a higher rate, which is a decision to fund losses out of other income.
- Exactly 1.0 — rent covers debt service and nothing more. No margin for a vacancy, a repair, or a tax rise — and capital expenditure is not in the calculation at all.
- 1.20 to 1.25 — the standard lender requirement, and a sensible personal minimum. It leaves a real buffer for the things the ratio excludes.
- Above 1.5 — strong coverage, often available at better pricing, and resilient to a period of vacancy or an unexpected expense.
What the ratio leaves out
DSCR is a lending test, not a full measure of whether an investment is sound, and treating it as one is a common way to buy a property that qualifies and still loses money.
Capital expenditure is excluded entirely. Roofs, heating systems, water heaters and full turnovers between tenants are real, large and periodic, and none of them appear in operating expenses. A property comfortably at 1.25 can still consume cash across a decade once these are counted.
The vacancy assumption also matters more than it looks. A lender may underwrite at a 5% market vacancy while the property sits empty for two months between tenants — that is closer to 17%, and the ratio computed on the optimistic figure was never real. It is worth running the calculation twice, once on the lender's assumptions to see whether the loan qualifies, and once on conservative assumptions to see whether the deal actually works.
What this assumes, and where it stops
Assumptions
- Debt service is principal and interest on a fully amortising fixed-rate loan.
- Operating expenses exclude the mortgage, and exclude capital expenditure.
- The vacancy allowance is applied to gross rent before expenses.
- Only this property is considered — portfolio-level underwriting is not modelled.
Limitations
- Lenders apply their own vacancy assumptions and often use an appraiser's market rent rather than the actual lease, so their DSCR may differ from yours.
- Interest-only DSCR loans produce a very different ratio, since debt service excludes principal. This models amortising payments only.
- Capital expenditure reserves are excluded, and they are the most common reason a qualifying property still loses money.
- Prepayment penalties, rate adjustments and lender fees are not included.
Common questions
What DSCR do lenders require?
Most DSCR lenders want 1.20 to 1.25, meaning net operating income exceeds annual debt service by 20–25%. Some will lend at 1.0, and a few go below it at higher rates and larger down payments. As a personal standard rather than a lending one, 1.25 is a sensible floor because it leaves margin for the vacancies, repairs and capital costs the ratio itself ignores.
How is DSCR different from cash flow?
DSCR is a ratio; cash flow is a dollar amount. A property with a 1.25 DSCR on a small loan might generate only a few hundred dollars a month, while the same ratio on a large loan produces far more. DSCR also excludes capital expenditure entirely, so a property can show a healthy ratio and still consume cash once a roof or heating system needs replacing.
Do DSCR loans need tax returns or income verification?
No — that is the point of them. The lender underwrites the property's rental income against the proposed debt service rather than your personal finances, so there is no employment verification, no tax returns and no debt-to-income test. In exchange you typically pay one to two percentage points more in rate, put down 20–25%, and accept a prepayment penalty in the early years.
Sources
- Commercial Real Estate Lending — Comptroller's Handbook — US Office of the Comptroller of the Currency
Formula and content last reviewed on .
Results are estimates for information only, not professional advice.
Related calculators
Tools people commonly use alongside the dscr loan calculator.