Lender coverage test
DSCR Calculator
DSCR is net operating income divided by annual debt service. At 1.00 the property exactly pays its own mortgage; most lenders want 1.20 to 1.25. The example below computes to 1.25 — right on the line — and the sensitivity table shows how little has to move before it slips underneath.
Deal snapshot
DSCR
Tight1.25
$19,310 of NOI against $15,469 of annual debt service. Most lenders want 1.20–1.25 or better.
Net operating income
$19,310
Annual debt service
$15,469
Monthly cash flow
+$320
Cap rate
7.29%
Cash-on-cash
4.75%
Loan payment / mo
$1,289.09
Net operating income
NOI = effective gross income − operating expenses
NOI = $31,065 − $11,755
NOI = $19,310 per year
Debt service coverage
DSCR = NOI ÷ annual debt service
= $19,310 ÷ $15,469
= 1.25
Pre-tax cash flow
Cash flow = NOI − annual debt service
= $19,310 − $15,469
= +$3,841 per year, +$320 per month
Your numbers
| Annual operating statement | Per year |
|---|---|
| Gross scheduled rent | $31,800 |
| Other income | $900 |
| Gross potential income | $32,700 |
| Vacancy and credit loss | ($1,635) |
| Effective gross income | $31,065 |
| Property tax | ($3,420) |
| Insurance | ($1,650) |
| Utilities | ($720) |
| Other operating | ($300) |
| Property managementon collected rent | ($2,485) |
| Maintenance reserveon scheduled rent | ($1,590) |
| CapEx reserveon scheduled rent | ($1,590) |
| Total operating expenses | ($11,755) |
| Net operating income | $19,310 |
| Annual debt servicenot an operating expense | ($15,469) |
| Pre-tax cash flow | +$3,841 |
Debt service sits below net operating income, never inside it. That single placement is what keeps cap rate a property metric instead of a loan metric.
| Acquisition | Amount |
|---|---|
| Purchase price | $265,000 |
| Loan amount | $198,750 |
| Down payment | $66,250 |
| Closing costs | $6,625 |
| Up-front rehab | $8,000 |
| Total cash invested | $80,875 |
| All-in costprice + closing + rehab | $279,625 |
| Monthly principal and interest | $1,289.09 |
- Break-even occupancy
- 82.2%
- Break-even rent
- $2,236 / mo
- Operating expense ratio
- 37.8%
- Year-one principal paydown
- $2,118
| Scenario | NOI | Cap rate | Cash-on-cash | DSCR | Cash flow / mo |
|---|---|---|---|---|---|
| -15% rent | $15,618 | 5.89% | 0.18% | 1.01 | +$12 |
| -10% rent | $16,848 | 6.36% | 1.71% | 1.09 | +$115 |
| -5% rent | $18,079 | 6.82% | 3.23% | 1.17 | +$218 |
| 0% rent | $19,310 | 7.29% | 4.75% | 1.25 | +$320 |
| +5% rent | $20,540 | 7.75% | 6.27% | 1.33 | +$423 |
| +10% rent | $21,771 | 8.22% | 7.79% | 1.41 | +$525 |
Each row is the whole model re-run with one variable moved — not a slope estimated from the base case.
What DSCR does a lender actually require?
There is no single number, but the bands are consistent across the investor lending market. What changes with the ratio is not usually a yes or no — it is the price.
| DSCR | What it means | Typical treatment |
|---|---|---|
| Below 1.00 | The rent does not cover the loan | Declined, or priced with a large rate add-on |
| 1.00 – 1.19 | Covers, no margin | Fundable on many DSCR programmes, higher rate |
| 1.20 – 1.24 | Thin but conventional | Standard on most investor loans |
| 1.25 and above | Comfortable | Best pricing; the agency multifamily standard |
The example deal lands at exactly 1.25 — technically fine, practically fragile. Drop rent 5% and it falls to 1.17. Add half a point to the rate and it falls to 1.19. Both of those are ordinary things that happen between an offer and a closing.
Working backwards: how big a loan does this NOI support?
Lenders size loans from coverage, not from what you would like to borrow. The arithmetic runs in reverse:
- Maximum annual debt service = NOI ÷ required DSCR. $19,310 ÷ 1.25 = $15,448.
- Maximum monthly payment = $15,448 ÷ 12 = $1,287.
- Invert the amortisation formula at 6.75% over 30 years — every $1,000 borrowed costs $6.49 a month — so $1,287 ÷ $6.49 × $1,000 ≈ $198,500.
That is 74.9% of a $265,000 price, which is why a 25% down payment and a 1.25 coverage floor so often turn out to be the same constraint.
Watch the denominator
Common questions about DSCR
- What is the DSCR formula?
- DSCR = net operating income ÷ annual debt service. On the example loaded here, $19,310 of NOI against $15,469 of annual principal and interest gives a DSCR of 1.25. A ratio of 1.00 means the property exactly covers its own loan payments with nothing left over.
- What DSCR do lenders require?
- Most investor and DSCR-loan programmes set the floor between 1.00 and 1.25, with 1.20 to 1.25 typical for a 30-year fixed on a small residential rental. Some lenders will go to 1.00 or even below with a rate premium and a larger down payment. Agency multifamily debt is usually underwritten at 1.25 for fixed-rate loans.
- How do lenders calculate DSCR differently from me?
- Two ways, and both are stricter. Many use PITIA — principal, interest, taxes, insurance and HOA — as the denominator rather than principal and interest alone, which lowers the ratio. And they re-underwrite the income themselves, often at 75% of market rent or from a Fannie Mae Form 1007 rent schedule rather than your lease. Assume your number is the optimistic one.
- How much can I borrow at a 1.25 DSCR?
- Divide NOI by the required ratio to get the maximum annual debt service, then work backwards through the payment formula. At $19,310 of NOI and a 1.25 floor, the most debt service the property supports is $15,448 a year, or $1,287 a month — which at 6.75% over 30 years is a loan of about $198,500.
- Why did my DSCR fall below 1 when I raised the down payment?
- It should not — a larger down payment means a smaller loan and a lower payment, so DSCR rises. If it falls, something is being double-counted, usually debt service inside NOI. That is the single most common error in free calculators, and it is why this one shows NOI struck above the debt line.
DSCR depends entirely on getting NOI right, which is covered on the NOI calculator. For the unlevered view of the same income see the cap rate calculator, and for what is left in your pocket after the payment, the cash on cash return calculator. Refinancing a loan on your own home instead? PayoffCalculator.io handles payoff, recast and refinance maths.
The rest of the deal, on the same numbers
Your inputs are shared across every calculator on this site, so changing a figure here changes it everywhere.
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