DSCR calculator

The DSCR formula

Net operating income is a year of rent, minus vacancy, minus the operating expenses (management, maintenance, capital expenditures, taxes, insurance, HOA and other costs). Annual debt service is twelve monthly principal-and-interest payments on the loan. Divide the first by the second.

A DSCR above one means the property's income covers its loan payments with some to spare; exactly one means it just covers them; below one means the owner has to pay in.

How lenders use it

Each lender sets its own minimum DSCR and its own way of working it out, so ask yours. Some divide the gross rent by the full monthly payment including taxes, insurance and HOA dues instead of using NOI. This calculator uses NOI with vacancy and operating costs counted, which usually gives a lower, more conservative ratio.

DSCR and the loan you can get

A DSCR loan is underwritten on the property's income rather than your personal income, so the ratio decides how much a lender will lend. Lenders work backwards: they take the rent, apply their own expense and vacancy rules, and size the loan so the payment fits under the income with the cushion they require.

That makes the loan term and the rate as important as the rent. A longer term lowers each payment and raises the ratio; a higher rate does the opposite. The calculator recomputes the payment from your rate and term, so you can see where the ratio crosses one.

Interest-only, adjustable and short-term rental loans

This calculator assumes a fixed-rate loan that is repaid in equal monthly instalments. An interest-only period has smaller payments, so the ratio looks higher until the principal starts; an adjustable rate can change the payment, and with it the ratio, after the fixed period ends.

Homes rented by the night are often judged on different income evidence, such as a booking history or a market study, rather than a long-term lease. Ask the lender which income figure it will accept before you rely on the result.

How to raise a low DSCR

Anything that raises the income or lowers the loan payments helps:

• A bigger down payment (a smaller loan)
• A lower interest rate or a longer loan term
• A higher rent, if the market supports it
• Lower operating costs, such as self-managing or a cheaper insurance policy