Debt Service Coverage Ratio Calculator
Calculate the debt service coverage ratio lenders use on investment property, and find the largest loan payment your income actually supports.
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Debt service coverage ratio divides net operating income by annual loan payments. It answers a lender's only real question about an investment property: does the building produce enough to pay its own debt, with room to spare?
A ratio of 1.0 means income exactly covers the payments and any vacancy or repair becomes a shortfall. Most lenders want 1.20 to 1.35 on residential investment property, and more on commercial, which is why this ratio rather than your salary often sets the loan size.
The formula
DSCR = net operating income ÷ annual debt service. Net operating income is rent minus running costs, before any loan payment. Rearranged, the largest annual payment a lender will allow is NOI ÷ the required ratio.
Worked example
A property collecting 28,000 a year with 8,000 of running costs has an NOI of 20,000. Against annual loan payments of 14,400, the DSCR is 1.39 — comfortably above a 1.25 requirement. At that requirement the maximum allowable payment is 20,000 ÷ 1.25 = 16,000 a year, or about 1,333 a month.
Lenders use their own numbers
Expect the lender to apply its own vacancy allowance, its own management fee, and often a stressed interest rate well above the one being offered. Run your figures with a conservative NOI and a higher rate before assuming the loan will be approved at the size you want.
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Create your free property pageFrequently asked questions
What DSCR do lenders want?
Commonly 1.20 to 1.35 on residential investment property and 1.25 to 1.50 on commercial, though it varies by lender and asset. Below 1.0 the property does not cover its own debt and few lenders will proceed at all.
Does my personal income matter for a DSCR loan?
Less than on a residential mortgage, which is the appeal. The property income does the qualifying. Most lenders still check credit history and require reserves, so it is not entirely independent of you.
How do I improve the ratio?
Raise net operating income or lower the payment. In practice that means increasing rent, cutting running costs, borrowing less, or extending the term — a longer term lowers the annual payment and lifts the ratio at the cost of more total interest.
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