Will the property cover its own debt?
Debt Service Coverage Ratio is the one number a commercial lender checks first. Enter the income and the loan and see your DSCR live, how it stacks up against the 1.25 bar, and the largest loan you could still qualify for.
Income
Net operating income is computed from these.
What your DSCR means
DSCR as the loan grows
The four numbers at a glance
DSCR at different loan amounts
Same income, same rate and term. Only the loan changes, so you can see where you cross the 1.25 line.
| Loan amount | Monthly payment | Annual debt service | DSCR | Rating |
|---|
DSCR, explained
What DSCR Tells You
DSCR = NOI / Annual Debt Service. A DSCR of 1.25 means the property earns $1.25 in NOI for every $1.00 of mortgage payment. Commercial lenders typically require 1.20-1.40 minimum.
DSCR Thresholds
1.0 = breakeven (income equals debt). 1.20 = minimum for most commercial loans. 1.25-1.35 = typical lender requirement. 1.50+ = strong, easy approval and best rates.
DSCR Loans for Investors
DSCR loans qualify based on property income, not borrower income, popular with real estate investors who can't show W-2 income. Typical terms: 30-year, 7-9% rate, 20-25% down, DSCR 1.0-1.25 minimum.
Improving DSCR
Three levers: raise rent (raises NOI), reduce expenses (raises NOI), refinance at lower rate (lowers debt service). Smaller down payment lowers DSCR; bigger down payment raises it.
Common questions
What DSCR do banks require?
Typically 1.20-1.35 for commercial loans. DSCR loan products may go as low as 1.0 (breakeven) for experienced investors with strong reserves.
Below 1.0 means what?
Property doesn't generate enough income to cover debt. Owner must subsidize with other income. Lenders rarely approve below 1.0.
Does DSCR include vacancy reserve?
Yes, NOI in DSCR calculation should be calculated AFTER vacancy allowance. Lenders typically use 5-10% vacancy.
DSCR vs DTI?
DTI (debt-to-income) is for borrower personal finances. DSCR is for the property's ability to service its own debt. Different metrics, different uses.
How is debt service calculated?
Annual principal + interest payments. Excludes property tax, insurance, HOA (those are in NOI expenses).
Estimates for planning only. Lenders calculate NOI and debt service with their own underwriting rules, vacancy factors and reserve requirements, and DSCR minimums vary by program and borrower. Confirm every figure with your lender before you rely on it.