# DSCR Loan Calculator

## DSCR Loan Calculator Results

DSCR

1.75

Monthly Repayments

$1,174.02

Estimated Loan Amount

$160,000

Down Payment Required

$40,000

## DSCR Definitions

**Debt Service** = The total amount of money required to pay back existing debt obligations.

**DSCR** = Debt Service Coverage Ratio: This is the ratio of debt-to-income. It helps lenders evaluate if a borrower has the financial means to pay back their existing debt. It also helps to determine if a borrower is a good candidate for a new loan or a loan increase.

**Net Operating Income (NOI)** = Total Operating Income – Total Operating Expenses

**DSCR Loan** = This is a type of real estate loan for rental properties specifically. The income potential of the rental property is evaluated during the loan application process.

## How To Calculate DSCR

In order to calculate DSCR, you effectively need 3 key pieces of information.

- Annual Income
- Annual Expenses
- Annual Debt Obligations

Armed with these three pieces of information, you have everything you need to enter it into the DSCR Formula.

### DSCR Formula for Real Estate

**DSCR** = Annual Income – Annual Expenses (NOI) / Total Debt Obligations

### DSCR Real Estate Example

To complete this DSCR Example, let’s imagine that you, or your business, have the following conditions.

- Annual Income: $60,000
- Annual Expenses: $22,000
- Annual Debt Obligations: $18,000

Now all you need to do is enter this information into the debt service formula.

**Formula for DSCR = NOI / Total Debt Obligations**

- DSCR = ($60,000 – $22,000)/$18,000
- DSCR = 2.11

### DSCR Formula for a Business

**Business DSCR** = EBITDA / Total Debt Obligations

Calculating debt service for a business is slightly different to calculating debt service for real estate.

**The primary difference is that instead of using NOI, it is preferable to use EBITDA**, which stands for Earnings Before Interest, Taxes, Depreciation and Amortization.

## How To Calculate Loan Amount Using DSCR

The simple truth is that you can’t get an accurate estimate of the loan value without factoring in the purchase price of the rental property.

For instance, Loan-to-Value is a far more useful metric for estimating the maximum loan amount that a lender is willing to provide.

In current market circumstances, it is common for lenders to offer a Loan-to–Value rate of 80%. This means that the lender is willing to provide a loan amount that is equal to 80% of the rental property’s purchase price.

The borrower’s DSCR is then factored into the loan terms, which can affect the interest rate, monthly repayments and origination fee that is offered.

## What Do the Results Mean For A Borrower

More than anything, the goal of the debt service coverage ratio formula is to determine if the business/borrower is cash flow positive.

It can be helpful to think of it this way:

**DSCR < 1**

If the DSCR Ratio is less than 1, it means the property is cash flow negative. This means the debt obligations exceed the net operating income. Lenders will not approve a loan if it meets these conditions.

**DSCR = 1**

In this scenario, the NOI is equal to the total debt obligations. It is the equivalent of breaking even.

**DSCR > 1**

If the DSCR is greater than 1, it means the property is cash flow positive. Stated differently, the NOI is greater than the total debt obligations, which means underlying business entity can cover the cost of the debt.

- A high DSCR (greater than 1) means that a company generates enough income to cover their debt obligations.
- A low DSCR (less than 1) means that a company can’t cover their debt obligations.

**Additional Note:** Most lenders require the DSCR to be greater than 1.25 to consider granting a loan to the borrower. This builds in a margin of safety for the loan originator, in case market conditions take a turn for the worse.

With that being said, there are scenarios where a DSCR lender may be willing to grant a DSCR loan, even if the DSCR is less than 1.25.

This will either lead to a lower total loan value, a higher interest rate, or both.

### DSCR Loan

30- year fixed DSCR Loan for stabilized rental properties

Interest Rate

from 7.5%

Origination fee

3%

Loan To Purchase Price

up to 80%

Loan To Value

up to 80%

Minimum DSCR

None

Term

30-yr fixed rate

Minimum Loan Amount

$100,000

Maximum Loan Amount

$2,000,000

Minimum FICO

680

Type of Property

Residential 1-4 units

## Additional Resources

### DSCR Loan

A DSCR Loan is a unique loan product designed specifically for real estate investors. The cash flow status of the rental property is incorporated into the loan terms. It is very well suited to rental property investors.

#### DSCR Loan Interest Rates

Find out the latest DSCR Loan Interest Rates here. This guide explores what rate you are likely to qualify for.

#### DSCR Loan Requirements

First and foremost there must be a rental property to evaluate, but there are other DSCR Loan Requirements.

#### DSCR Loan Pros & Cons

There are advantages and disadvantages associated with DSCR Loans. This guide outlines all the DSCR Loan Pros & Cons.

#### Best DSCR Lenders

Simply put, some lenders are better than others. This guide reviews the Best DSCR Lenders at this moment in time.