Debt Service Coverage Ratio (DSCR) Calculator

Debt Service Coverage Ratio is annual net operating income divided by annual debt service (principal plus interest). A property with $120,000 of NOI and $90,000 of debt service has a DSCR of 1.33x, meaning NOI covers debt payments 1.33 times. Anything at or above 1.0 means the property pays its own loan; below 1.0 means the owner is out of pocket every month. Commercial lenders use DSCR as the primary income test on real estate and term loans because it measures the property's or company's ability to service the debt without dipping into reserves or fresh equity.

Most stabilized commercial real estate lenders set a minimum DSCR between 1.20x and 1.25x at origination. Fannie Mae Multifamily and Freddie Mac Small Balance Loan programs typically require 1.25x for market-rate apartments and 1.20x for affordable housing. SBA 7(a) loans typically require 1.15x. CMBS conduit loans often demand 1.25x to 1.30x. Bridge and construction loans, where cash flow is unstable, often require 1.30x to 1.40x or rely on debt yield instead. The higher the perceived risk (hospitality, single-tenant office, secondary markets), the higher the DSCR floor.

Corporate term loans and revolvers usually include a financial covenant requiring borrowers to maintain a minimum DSCR (or its sibling, the fixed charge coverage ratio) measured every quarter. Typical investment-grade covenants set the floor at 1.20x to 1.40x. Leveraged loans and middle-market deals run 1.10x to 1.30x with a cushion. Breaching the covenant lets the lender call the loan, raise the rate, demand collateral, or block dividends until cured. Companies operating close to the covenant line will sometimes refinance early or seek an amendment to widen the cushion rather than risk a technical default.

A DSCR under 1.0 means net operating income does not cover debt service, so every payment requires the owner to inject cash from outside the property (reserves, other holdings, fresh equity, more debt). The shortfall compounds. A $100,000-per-year gap drains $500,000 of reserves in five years. Without a clear path to higher rents or lower expenses, owners eventually default, hand the keys back (deed in lieu), or push the property into a short sale or foreclosure. Lenders flag any approved loan that drops below 1.0 DSCR as a watch credit and often require monthly reporting, a deposit-control agreement, or a debt-service reserve top-up to protect against loss.

Yes. DSCR loans are a non-QM (non-qualified mortgage) product designed for real estate investors who do not want to document personal income. The lender qualifies the loan on the property's projected rent-to-debt ratio (typically 1.0x to 1.25x minimum, sometimes 0.75x with a pricing add-on) rather than W2s, tax returns, or DTI. Rates are usually 1 to 2 percentage points higher than conforming investment property loans, down payments run 20 to 25 percent, and prepayment penalties are common in the first 1 to 5 years. DSCR loans are popular with self-employed investors, LLC-titled rentals, short-term rental owners, and anyone whose tax returns show low taxable income after depreciation despite strong cash flow.