What is a good DSCR?
Above 1.0 means income covers the loan payments. Most banks and SBA lenders want at least 1.25, so there is a cushion if income dips. Lenders differ, so ask yours which minimum they use.
DSCR Calculator
Debt coverage and how much you can borrow.
Enter yearly income and loan payments.
Lenders define income and payments in their own ways. Ask yours which they use.
How it is worked out
- DSCR = net operating income ÷ yearly loan payments
- Most payments allowed = net operating income ÷ lender’s minimum DSCR
- Largest new loan = spare payment per month × (1 − (1 + r)^−n) ÷ r
Example: Net operating income of $150,000 against $100,000 of loan payments is a DSCR of 1.50. At a 1.25 minimum the income supports $120,000 of payments a year, leaving $20,000: enough for a new loan of about $137,369 at 8% over 10 years.
About the DSCR Calculator
Debt service coverage ratio from your income and loan payments, what a lender’s minimum leaves room for, and the largest loan that fits.
How to use this tool
- Enter your yearly net operating income: income minus operating costs, before any loan payments.
- Enter what you pay on all your loans in a year, principal plus interest.
- Add a rate and term to see the largest new loan that income supports.
Frequently asked questions
How do I calculate DSCR for a rental property?
Take a year’s rent, subtract operating costs such as property tax, insurance, repairs, management and vacancy, but not the mortgage. Divide that by a year of mortgage payments. $36,000 of rent less $12,000 of costs, against $20,000 of payments, is a DSCR of 1.20. Some lenders put tax and insurance in the payments instead; ask which way yours does it.
What counts as net operating income?
Income from the business or property minus the costs of running it, before loan payments, income tax, depreciation and amortization. For a business it is close to EBITDA.
What does a DSCR below 1 mean?
The income does not cover the loan payments, so the shortfall has to come from savings or other income. Lenders rarely approve a new loan in that position.
How is the largest loan worked out?
Income ÷ the minimum DSCR gives the most a lender lets you pay each year. Take off what you already pay, and the rest is spread over the term at the rate you enter. This equals Excel’s =PV(rate ÷ 12, months, −monthly room).