Debt Service Coverage Ratio Calculator
Calculate the debt service coverage ratio for a property or business, find the maximum loan a lender would approve at a target DSCR, and see the break-even occupancy.
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The ratio lenders actually decide on
Debt service coverage divides net operating income by the annual debt payments. A ratio of 1.0 means income exactly covers the payments with nothing spare, which no lender accepts. Commercial property lenders typically require 1.20 to 1.35, business lenders 1.25 or above, and multifamily agency lending often 1.25. Below the threshold the loan is not approved regardless of the borrower's credit, because the asset itself does not service the debt.
The ratio sets the loan size
For income producing property, the DSCR requirement frequently binds before the loan to value limit. A property producing 120 thousand of net operating income, at a 1.25 requirement, can support 96 thousand of annual debt service. At a given rate and amortisation that dictates a maximum loan, and if the purchase price implies a larger one the deal needs more equity. Running this calculation before making an offer is what separates a financeable deal from an accepted offer that cannot close.
Net operating income excludes the mortgage
The most common error is subtracting debt payments before computing net operating income, which double counts them. Net operating income is rental income less vacancy, operating expenses, property taxes, insurance and management, but before financing, depreciation and capital expenditure. Lenders also apply their own vacancy and replacement reserve assumptions rather than yours, which usually produces a lower figure than the one on the marketing sheet.
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Frequently Asked Questions
What DSCR do lenders require?
Commonly 1.20 to 1.35 for commercial property, 1.25 for agency multifamily and business lending, and higher for riskier asset classes such as hospitality. Some residential investor lenders accept 1.0 or even below with compensating factors and a higher rate.
What counts as net operating income?
Gross rental income less vacancy, operating expenses, property taxes, insurance and management fees. It excludes mortgage payments, depreciation, capital expenditure and income tax. Deducting the mortgage before calculating it is the single most common mistake.
Why does the lender’s NOI differ from mine?
Because lenders substitute their own assumptions: a vacancy allowance of five to ten percent whether or not you have vacancy, a management fee whether or not you self manage, and a replacement reserve per unit. These reduce the figure and therefore the loan.
What is break-even occupancy?
The occupancy level at which net operating income exactly covers debt service and operating costs. It is the cushion in the deal: an 80 percent break-even means occupancy can fall 20 points before the property cannot pay its own mortgage.
Does an interest-only period help the ratio?
Yes, substantially, because debt service is lower without principal. It also means the ratio worsens when amortisation begins, which lenders size for. Check the ratio on the fully amortising payment, not the interest-only one.
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How to Use
Enter net operating income and debt service, or a property income and expense profile.
Disclaimer: This tool is provided "as is" without warranty of any kind. Results are for educational and utility purposes.
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