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DSCR Calculator

Debt service coverage ratio. The metric commercial lenders care about more than your credit score.

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DSCR
1.25
✓ Passes lender minimum (target 1.25)
Max Annual Debt @ Target DSCR$48,000
Approx Max Loan (7%/30yr)$601,504
Min NOI Needed @ Target$60,000

Sam's Take

DSCR is the test commercial lenders apply before they look at you, your credit, your tax returns. If the property doesn't cover its own debt with margin, no amount of personal financial strength will save the deal at most banks. The trick is finding properties where current DSCR is borderline but stabilized DSCR — after you fix below-market rents — is solidly above 1.30. That's where value-add multifamily returns come from.

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What DSCR is, in plain English

DSCR stands for Debt Service Coverage Ratio. It's one number: the property's annual net operating income divided by the annual mortgage payment (the "debt service"). A DSCR of 1.25 means the property generates $1.25 of NOI for every $1 of mortgage payment — a 25% cushion. A DSCR of 1.0 means the property exactly covers its mortgage with nothing left over. Below 1.0 means the property doesn't generate enough income to pay its own loan.

DSCR is the most important number in commercial real estate lending. On a single-family mortgage, the bank cares mostly about your personal income and credit. On a 12-unit, the bank cares about whether the building can pay its own mortgage — because if you walk away, that's all they have. DSCR is how they measure that.

What DSCR most lenders require

  • Conventional commercial loans — DSCR 1.25 minimum, often 1.30+ in tighter markets.
  • SBA 7(a) for owner-occupied commercial — DSCR 1.15 minimum.
  • DSCR loans on 1-4 unit residential investment — DSCR 1.0-1.25 depending on the lender, with rate adjustments at the lower end.
  • Agency multifamily (Fannie/Freddie) — DSCR 1.25-1.35 depending on the program.

If your deal pencils at DSCR 1.10 and the lender requires 1.25, you have three real options: bring more equity (smaller loan = smaller debt service = higher DSCR), negotiate a lower price, or grow NOI (raise rents, cut expenses). If none of those get you to 1.25, the deal doesn't work — at least not at that financing.

The "DSCR loan" — a special product worth knowing about

For 1-4 unit residential investment properties, lenders increasingly offer something called a "DSCR loan." The pitch: the lender doesn't verify your personal income. They only verify that the property itself cash flows enough to cover the debt. If the property hits DSCR 1.0 or higher, you qualify — even if you'd never qualify for a conventional investment loan based on your tax returns.

This is a real unlock for self-employed investors, full-time investors who report low W-2 income, and anyone whose tax returns make them look poor on paper even though they have meaningful real estate income. The trade-off: rates run 0.5-1% above conventional, and the underwriting is stricter on the property condition. Worth knowing about. I've used variations of this on my own deals when traditional underwriting wouldn't work for a particular vehicle.