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How to Use a DSCR Calculator to Determine Your Debt Service Coverage Ratio

Updated: Dec 31

DSCR Calculator

Are you a real estate investor struggling to qualify for financing because of income concerns? We understand your predicament as we've been in the same position and learned that a DSCR loan might be the answer.

In our comprehensive guide, we delve into how a Debt Service Coverage Ratio (DSCR) calculator can assess your property's performance and determine your loan qualification based on net operating income rather than personal income.

Stay tuned - mastering this financial tool could change the trajectory of your investment journey!

Key Takeaways

(The Debt Service Coverage Ratio (DSCR) is a financial metric used by lenders to assess a borrower's ability to repay debts.

To use a DSCR calculator effectively, you need to enter information such as purchase price, interest rate, loan term, estimated expenses, and rental income.

A high DSCR indicates strong cash flow and improves the chances of loan approval. Borrowers with a low DSCR can improve their situation by reducing operating costs or increasing rental income.

Other factors to consider when calculating DSCR include the impact of interest - only loans and how income taxes can complicate calculations.

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Understanding Debt Service Coverage Ratio (DSCR)

Debt Service Coverage Ratio

The DSCR, or Debt Service Coverage Ratio, is a financial metric used by lenders to assess the borrower's ability to repay their debts.

DSCR Formula and Calculation

We calculate the Debt Service Coverage Ratio (DSCR) using a simple formula: DSCR = Net Operating Income (NOI) divided by Total Debt Service. This calculation primarily serves as a tool to assess your real estate investment's performance and your capability to pay back the loan.

To compute NOI, subtract all operating expenses from gross income generated by the property. The total debt service, on the other hand, comprises of principal payments and any outstanding interest obligations for a given period.

By getting a hold of how DSCR works and mastering its computation process, borrowers like us can easily ascertain if our prospective loan application has high approval chances or not.

A crucial part to remember is that lenders generally favor applicants who have their DSCRs figure well above 1 - meaning, they earn significantly more than what they owe in terms of debt responsibilities every month.

For those striving to boost their business' financial standing in preparation for loan applications or re-evaluations, several methods are available at our disposal - trimming down operational costs, enhancing rent revenue streams through strategic marketing efforts or physical enhancements on rented spaces and properties refinancing options among others.

How is Net Operating Income (NOI) Calculated?

Net Operating Income (NOI) is a key metric when it comes to assessing the viability of real estate investments. It's computed by taking the gross operating income and subtracting all necessary operating expenses.

Gross operating income includes revenues from rent, along with any additional income generated by property-related services like parking facilities or vending machines.

To calculate NOI accurately, you must distinguish between capital and operational costs. Capital expenditures are non-recurring and often include significant one-time purchases such as a new roof or heating system.

Conversely, operational costs encompass recurring expenses that keep your investment in working order - these can range from routine maintenance to property management fees, taxes, insurance charges and utilities if not paid for by tenants.

The difference produces your Net Operating Income which acts as an efficient measure of profitability before accounting for mortgage payments on rental properties used in DSCR calculations.

How Is Debt Service Calculated?

Debt service is a crucial part of the DSCR calculation. It's determined by adding together all your regular loan payments for a property in one year. This includes both periodic principal repayments and interest charges on your real estate loans, whether they are commercial loans or residential mortgages.

These monthly debt obligations are then added with any fees and interests to formulate the total amount of money owed annually. The higher these costs are, the greater your annual debt service will be.

How to Use a DSCR Calculator

How to Use a DSCR Calculator

To use a DSCR calculator, simply enter the purchase price, interest rate, and loan term. Then input estimated taxes, HOA fees, and your down payment. Indicate the total loan amount and review the loan payment.

Next, enter insurance and gross rental income. Finally, review your DSCR to determine if it meets lending criteria for approval.

Use Our DSCR Calculator

Enter Purchase Price, Interest Rate, and Loan Term

To use a DSCR calculator effectively, you will need to provide three key pieces of information: the purchase price of the property, the interest rate on your loan, and the length of time for repayment (loan term).

These details are essential for accurate calculations and will help you determine your Debt Service Coverage Ratio (DSCR). By inputting this information into the calculator, you can quickly assess whether your income will be sufficient to cover your monthly debt obligations.

Input Estimated Taxes, HOA Fees, and Down Payment

To accurately determine your Debt Service Coverage Ratio (DSCR) using a DSCR calculator, you need to input estimated taxes, HOA fees, and down payment. These inputs play a crucial role in assessing your financial health and determining whether you qualify for a mortgage loan.

Estimated taxes help calculate the net operating income (NOI), which is an important factor in evaluating your ability to cover debt obligations. Similarly, including HOA fees provides a more accurate representation of your monthly expenses.

Lastly, the down payment amount influences the total loan amount and impacts your monthly debt service payments. By entering these details into the DSCR calculator, you can gauge whether you meet the necessary criteria for obtaining a mortgage loan.

Indicate the Total Loan Amount and Review Loan Payment

To accurately calculate your Debt Service Coverage Ratio (DSCR) using a DSCR calculator, you need to input the total loan amount and review the loan payment. The total loan amount represents how much you are borrowing from the lender, while the loan payment reflects the monthly amount you must repay.

These two factors play a crucial role in determining your DSCR, as they directly impact your ability to cover your debt obligations with your income. By indicating the total loan amount and carefully reviewing the corresponding loan payment, you can get a clearer picture of how well you will be able to meet your financial responsibilities.

Enter Insurance and Gross Rental Income

To accurately calculate the debt service coverage ratio (DSCR), it's important to enter the correct information regarding insurance and gross rental income. Insurance costs for your rental property should be included in the calculation as part of your monthly expenses.

Additionally, you'll need to input the total gross rental income you expect to generate from the property each month. These figures are crucial in determining whether your rental income can sufficiently cover your loan payments and other debt obligations.

By entering accurate insurance and gross rental income data, you can get a clear picture of your DSCR and better understand how it may impact your loan eligibility.

Review Your DSCR

To ensure that you have a clear understanding of your Debt Service Coverage Ratio (DSCR), it is important to review it carefully. The DSCR is a measure of your ability to cover loan payments with rental income.

Most lenders require a minimum DSCR of 1.25 or higher for loan approval. By reviewing your DSCR, you can assess the performance of your rental property and determine if you meet the lender's requirements.

It's crucial to consider factors such as net operating income, total debt service, and any other expenses associated with the property. This review will help you make informed decisions about your investment and understand whether refinancing or raising rental income may improve your DSCR in the future.



In conclusion, using a DSCR calculator is a crucial step for mortgage borrowers to determine their debt service coverage ratio. By inputting various financial factors such as purchase price, interest rate, loan term, estimated expenses, and rental income, borrowers can quickly assess their ability to repay the loan.

The DSCR calculator not only helps investors qualify for loans but also allows them to make informed decisions about their real estate investments. With this valuable tool at hand, borrowers can confidently navigate the loan approval process and optimize their chances of obtaining financing for their investment properties.


What is a debt service coverage ratio (DSCR)?

A debt service coverage ratio (DSCR) is a financial ratio used by lenders to assess the ability of a borrower to meet their debt obligations. It measures the cash flow available to cover interest and principal payments on outstanding debts.

How do I calculate my DSCR?

To calculate your DSCR, you need to divide your net operating income (NOI) by your total debt service (TDS). The formula is: DSCR = NOI / TDS. A higher DSCR indicates greater financial stability and lower risk for lenders.

Why is it important to know my DSCR?

Knowing your DSCR is important because it helps determine your borrowing capacity and shows whether you have sufficient income to cover your existing debts. Lenders often use this ratio as an indicator of creditworthiness when considering loan applications.

How can I use a DSCR calculator?

You can use a DSCR calculator by inputting the values of your net operating income and total debt service into the respective fields provided in the calculator tool. Once you click "calculate," the tool will generate your DSCR, helping you understand where you stand financially in terms of meeting your debt obligations

​Philip Bennett

​Philip Bennett

Philip is the owner and Licensed Mortgage Broker at Bennett Capital Partners, Bus. NMLS # 2046828. He earned his degree in Accounting and Finance from Binghamton University and holds a Master's Degree in Finance from NOVA Southeastern University. With more than 20 years of experience, Philip has been a leader in the mortgage industry. He has personally originated over $2 billion in residential and commercial mortgages.

Learn more about Philip Bennett's background and experience on our Founder's page. Whether you're a first-time homebuyer or a seasoned real estate investor, our team is here to help you achieve your real estate goals. Don't wait any longer, contact us today and let us help you find the right mortgage for your needs.

Discover helpful tips and tricks on mortgages by reading our blog posts

10 Year Interest Only Mortgage: For Refinances, Purchases, and Investors To learn more about interest only mortgages with 10 year terms. Click here to read the full article



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