What DSCR measures
The debt service coverage ratio (DSCR) tells a lender how many times a property's income covers its loan payments. A DSCR of 1.00 means the income exactly covers the payment. Above 1.00 there is a cushion; below 1.00 the owner has to cover the gap from other money. The OCC, which supervises national banks, describes it as a measure of "the borrower's ability to service its debt."
There are two common ways to calculate it, and the calculator does both.
1. Rental DSCR loans (1–4 units)
DSCR = monthly rent ÷ PITIA. PITIA is principal, interest, property taxes, insurance and association dues (HOA or common charges). Lenders that offer "DSCR loans" to investors often qualify the loan on the property's rent instead of your personal income. The rent may be the lease amount or a market rent from the appraisal, depending on the lender.
2. Commercial DSCR
DSCR = net operating income (NOI) ÷ annual debt service. The OCC's Commercial Real Estate Lending handbook defines NOI as annual gross income less operating expenses. Operating expenses do not include interest, principal or income taxes, and do not include depreciation, but they do include a reserve for replacing capital items. Because vacancy and operating costs come out first, this version is stricter than rent ÷ PITIA.
Worked example
A single-family rental leases for $3,200 a month. Taxes are $4,800 a year ($400 a month) and insurance $1,800 ($150 a month), with no HOA. You want a $360,000, 30-year loan at 7.25%.
| Item | Monthly |
|---|---|
| Principal & interest | $2,456 |
| Taxes + insurance | $550 |
| PITIA | $3,006 |
| Rent | $3,200 |
| DSCR (3,200 ÷ 3,006) | 1.06x |
That clears 1.00 but misses a 1.25 target. You have three levers:
- Borrow less. At 1.25x the rent supports a payment of $3,200 ÷ 1.25 − $550 = $2,010 of principal and interest, which is a loan of about $294,600. At 1.20x it is about $310,300.
- Raise the rent. Keeping the $360,000 loan, the rent would need to be about $3,757 (1.25 × $3,006).
- Change the payment. An interest-only payment of $2,175 lifts DSCR to about 1.17x, though you pay down no principal.
Run the same house in commercial mode with 5% vacancy and $4,800 of other operating costs: NOI is $25,080 against $29,470 of annual debt service, a DSCR of only 0.85x. Same property, very different answer, which is why you should always ask which formula a lender uses.
Why rates matter so much
The chart under the result recalculates DSCR at rates two points above and below yours with the same loan. In the example, 6.25% gives about 1.16x and 8.25% drops to about 0.98x. If you are buying with an adjustable-rate or short-term loan, test the higher rates before you commit.
Edge cases
- Multi-unit buildings: enter the total rent for all units.
- Lenders also cap the loan by loan-to-value. The max loan here is only the DSCR limit; the lower of the two wins.
- Negative or zero NOI means no loan size works at any target.
What to do next
See the full monthly picture with the rental cash flow calculator, check how much vacancy you can survive with the break-even occupancy calculator, and compare returns with the cap rate and cash-on-cash calculators.