How to use the DSCR calculator
The DSCR tab tests a loan you already have in mind:
- Income. Enter the annual net operating income, or switch to rent and expenses and enter the monthly gross rent, a vacancy allowance and the monthly operating costs. Operating costs include property tax, insurance, repairs, management and owner-paid utilities. Do not include the mortgage.
- Debt service. Enter the loan amount, rate and amortization period, or type the total annual payment directly if there is more than one loan or the payment is already known.
- Lender’s minimum DSCR. The default of 1.25 is a common requirement. Use the figure from your lender’s term sheet if you have it.
The Max loan tab works backwards: from NOI, the minimum DSCR, the rate and the lender’s loan-to-value limit, it finds the largest loan you can expect and which rule sets the limit.
The DSCR formula
The maximum loan reverses the calculation. The minimum DSCR caps the payment, and the payment is converted back into a loan amount:
Max loan by DSCR = Payment × [1 − (1 + i)−n] ÷ i
Max loan by LTV = Property value × maximum LTV
Maximum loan = the lower of the twoi is the annual interest rate divided by 12 and n the number of monthly payments over the amortization period.
A worked example
A small mixed-use building earns $78,000 of net operating income a year. You want a $700,000 loan at 6.75%, amortized over 25 years. The payment is $4,836.38 a month, or $58,037 a year.
The DSCR is $78,000 ÷ $58,037 = 1.34×. Against a minimum of 1.25×, the loan passes, leaving $19,963 of cash flow a year after the payments. NOI could fall by 25.6% before the property stopped covering its loan.
Now ask how much the building could borrow. With a 1.25× minimum, payments can be up to $5,200.00 a month, which repay $752,629 at 6.75%. The lender’s 75% LTV cap on a $1,100,000 value would allow $825,000, so income is the binding limit and the maximum loan is $752,629.
DSCR loans for real estate investors
A DSCR loan is an investment property mortgage that qualifies on the property’s income rather than the borrower’s. Instead of tax returns and a debt-to-income ratio, the lender looks at whether the rent covers the payment. That makes these loans popular with self-employed investors, people with several rentals whose tax returns show large depreciation deductions, and anyone buying through an LLC.
The trade-offs are generally:
- Higher rates and fees than a conventional owner-occupied mortgage, because the lender takes more risk.
- Larger down payments. Maximum loan-to-value ratios of 75% to 80% are typical for purchases, and lower for cash-out refinances.
- Rental properties only. The loan cannot finance a home you live in.
- Prepayment penalties are common, often stepping down over the first few years.
- The lender’s DSCR definition. Residential DSCR lenders frequently compare gross rent with the full payment including tax and insurance, while commercial lenders use NOI. Check which one applies before you rely on a result here.
Commercial loans on apartment buildings, retail and offices use the same test, usually with a fixed minimum such as 1.25 and a full underwriting of the property’s income and expenses.
What changes the DSCR most
The interest rate has a large effect because it changes the payment on the whole loan:
| Rate on the $700,000 loan | DSCR | Cash flow after debt | Result at 1.25× |
|---|---|---|---|
| 5.75% | 1.48× | $25,155 | Pass |
| 6.75% (the example) | 1.34× | $19,963 | Pass |
| 7.75% | 1.23× | $14,552 | Fail |
At 7.75% the same building fails. A borrower then has three levers: bring more equity and borrow less, find a longer amortization, or raise NOI. Borrowing $800,000 instead of $700,000 at the example rate also fails, at 1.18×.
On the maximum-loan side, the lender’s minimum ratio matters as much as the rate:
| Minimum DSCR | Maximum loan | Limited by |
|---|---|---|
| 1.00× | $825,000 | LTV (value) |
| 1.20× | $783,988 | DSCR (income) |
| 1.25× (the example) | $752,629 | DSCR (income) |
| 1.35× | $696,879 | DSCR (income) |
When rates fall, the income-based limit rises until the LTV cap takes over: at 5% the maximum is $825,000, set by value. At 7.75% it falls to $688,442. The table under the Max loan tab shows every half point from 5% to 9%.
How lenders look at the numbers
Lenders rarely accept the seller’s income figures as they are. Common adjustments include a vacancy allowance even for a full building, a management fee even if you manage it yourself, replacement reserves, and current market rents rather than above-market leases. Each of these lowers NOI, so an underwritten DSCR is often lower than the one in a listing. Running the calculator with conservative expenses gives you a figure closer to what the lender will see.
What this calculator does not include
- Interest-only payments. Some DSCR and bridge loans charge interest only for a period, which lowers debt service and raises the ratio. The amortizing payment here is the more conservative test.
- Lender-specific rules such as minimum loan sizes, credit score tiers, reserve requirements or a separate debt yield test.
- Escrow items in the payment. If your lender uses rent ÷ PITIA, add tax and insurance to the annual debt service and use gross rent as the income.
- Changes over time. DSCR is a snapshot of one year. Rising expenses or a rate reset on an adjustable loan can change it later.