DSCR Calculator (Debt Service Coverage Ratio)
DSCR Calculator (Debt Service Coverage Ratio)
How many times a property’s net operating income covers its loan payments, and the largest loan a target cover supports at a given rate and tenure.
DSCR
Rent $12,00,000 a year, costs $2,40,000, loan $50,00,000 at 9.5% for 15 years, target 1.2
Debt service coverage ratio and the largest loan
- NOI
- net operating income: income collected less operating costs, before loan payments and tax
- EMI × 12
- the year’s debt service, principal and interest
- i, n
- the monthly rate (annual ÷ 12) and the number of monthly EMIs
- target
- the lowest DSCR you or the lender will accept
Worked example
Rent $12,00,000 a year, costs $2,40,000, loan $50,00,000 at 9.5% for 15 years, target 1.2
NOI = 12,00,000 − 2,40,000 = $9,60,000
EMI on 50,00,000 at 9.5% for 180 months = $52,211; a year of EMIs = $6,26,535
DSCR = 9,60,000 ÷ 6,26,535 = 1.53
Income could fall 34.7% before it stopped covering the EMIs
At a target of 1.2 the EMI could be 9,60,000 ÷ 1.2 ÷ 12 = $66,667, which supports a loan of $63,84,322
What DSCR tells a lender
The debt service coverage ratio compares what a property earns with what its loan costs each year. Net operating income (NOI) is the rent actually collected less the costs of running the property: maintenance, service or society charges, property tax, insurance and management. It is counted before loan payments and before income tax. Debt service is every principal and interest payment due in the year. In the example, $9,60,000 of NOI against $6,26,535 of EMIs gives a DSCR of 1.53: the income pays the loan 1.53 times over, and could fall by 34.7% before it stopped covering it.
Lenders’ minimums vary. There is no single rule. Banks set their own minimum for commercial property, lease rental discounting and project loans, and it depends on the tenant, the lease and the property. Two published examples: Dhanlaxmi Bank’s lease rental discounting FAQ caps the EMI at 70% of gross or 90% of net rental income, which means net rent must be at least about 1.11 times the EMI; and in the United States, HUD’s rules for insured apartment loans have required 1.15 for market-rate properties since January 2025. Ask your lender for its figure and enter it as the target. The page’s default of 1.2 is an illustration, not a rule.
The largest loan. Turned around, a target DSCR fixes the largest EMI the income can carry (NOI ÷ target ÷ 12), and the rate and tenure turn that EMI into a loan amount. Lenders also cap the loan against the property’s value, so the smaller of this figure and the loan-to-value calculator limit applies.
Caveats. Use rent you can count on, not the best month: a vacancy or a rent-free period cuts NOI straight away, and a floating-rate loan raises the debt service when rates rise. For a home loan against your salary, lenders use a different test; see the home loan eligibility calculator. For the return on your own cash after the loan, see the cash-on-cash return calculator. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
What is a good DSCR?
Above 1 means the income covers the loan. How far above a lender wants varies by lender and property. Published examples range from about 1.11 (Dhanlaxmi Bank’s lease rental rule, on net rent) to 1.15 (US HUD market-rate loans). Ask your lender.
How is DSCR calculated?
Net operating income divided by the year’s loan payments. 9,60,000 ÷ 6,26,535 = 1.53.
Does NOI include the loan interest or depreciation?
No. NOI is income less operating costs, before any loan payments, depreciation and income tax. Loan payments are the other half of the ratio.
How much loan can a rental property support?
Divide NOI by the target DSCR to get the most the loan may cost a year, then turn that EMI into a loan amount at the rate and tenure. In the example, a target of 1.2 supports about $63,84,322.
Related calculators
References
- U.S. Department of Housing and Urban Development. Mortgagee Letters 2025-02 and 2025-03, 8 January 2025: minimum debt service coverage for Section 223(f) and 221(d)(4) loans reduced to 1.15 (market rate, from 1.176) and 1.11 (affordable, from 1.15); summarised by Nixon Peabody LLP, 14 January 2025. https://www.hud.gov/sites/dfiles/OCHCO/documents/2025-02hsgml.pdf
- Dhanlaxmi Bank. Lease Rental Discounting FAQ: EMI up to 70% of gross rental income or 90% of net rental income, whichever is lower. https://www.dhan.bank.in/pdf/pl-lrd-faq.pdf
- Brueggeman, W. B. and Fisher, J. D. Real Estate Finance and Investments. McGraw-Hill: net operating income and the debt coverage ratio in income-property lending.