About the DSCR (Debt Service Coverage Ratio) Calculator
DSCR lets lenders, brokers, and property investors compare net operating income with required annual debt service before sizing a commercial real estate loan. The calculator converts loan terms into payment, tests a target coverage threshold such as 1.25, and estimates a supportable loan amount based on the cash flow a property can actually carry.
How it works
- Enter annual net operating income before debt service.
- Add loan amount, interest rate, amortization, and payment frequency.
- Set the lender's minimum coverage ratio if it differs from the default.
- Review annual debt service, coverage, pass or fail status, and estimated maximum loan.
Frequently asked questions
What goes into net operating income for DSCR?
For real estate, net operating income is generally rental and other property income minus operating expenses before debt service, depreciation, and income tax. Capital expenditures and reserves may be handled separately by the lender.
Does annual debt service include principal?
Yes. Debt service coverage compares cash flow with required principal and interest payments due during the year.
Is a 1.25 DSCR required for every loan?
No. A 1.25 threshold is common in many commercial underwriting screens, but acceptable coverage depends on lender policy, property type, market risk, guarantor strength, and loan structure.
How does amortization affect DSCR?
Shorter amortization usually raises annual debt service and lowers coverage. Longer amortization can improve DSCR, but it may not be available or appropriate for every asset.
Can DSCR be used for business loans?
Yes, but the cash flow definition changes. Business lenders may use EBITDA, adjusted cash flow, or global cash flow rather than property-level net operating income.
References
- FDIC Risk Management Manual of Examination Policies - commercial credit cash flow and repayment analysis
- Fannie Mae Multifamily Selling and Servicing Guide - debt service coverage ratio underwriting