DSCR Loan Calculator
DSCR Loan Calculator Results
Estimated Loan Amount
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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.
30- year fixed DSCR Loan for stabilized rental properties
Loan To Purchase Price
up to 80%
Loan To Value
up to 80%
30-yr fixed rate
Minimum Loan Amount
Maximum Loan Amount
Type of Property
Residential 1-4 units
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.