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DSCR Calculator (Debt Service Coverage Ratio)

Determine whether your commercial property generates enough income to cover loan payments — and check against lender underwriting requirements.

DSCR Underwriting Tool

Debt Service Coverage Ratio (DSCR) Calculator

Evaluate net operating income against annual loan payments

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Total Annual Debt Service: $187,500/yr ($15,625/mo)

Standard Commercial Bank Underwriting Tiers:
  • ≥ 1.25x: Standard Commercial Bank Minimum Threshold
  • 1.15x - 1.20x: Acceptable for prime Long-term Net Lease/Government tenants
  • < 1.00x: Distressed / Negative Cash Flow

Underwriting Analysis

Debt Service Coverage Ratio (DSCR)
1.33x
Standard Commercial Bank Approval Range (1.20x - 1.35x)
Annual NOI:$250,000
Annual Debt Service:$187,500
Annual Pre-Tax Cushion:$62,500
Max Allowable Debt for 1.25x:$200,000
Tip: Higher DSCR reflects a larger income cushion against tenant vacancy or rate increases.

What Is DSCR and Why It Matters

DSCR (Debt Service Coverage Ratio) measures a commercial property's ability to cover its annual mortgage payments with its net operating income (NOI). Unlike residential lending, which focuses on a borrower's personal debt-to-income ratio, commercial lenders underwrite the property itself. DSCR is the single most critical ratio lenders use to determine maximum loan size, interest rates, and approval eligibility. A ratio of 1.0x means net income exactly covers loan payments, while lenders typically require 1.20x to 1.35x as a safety cushion for market fluctuations.

The Formula

DSCR = Net Operating Income (NOI) / Annual Debt Service
NOI:Annual Net Operating Income before debt service and income taxes
Annual Debt Service:Total annual principal and interest loan payments

A Real Example

Suppose an office building generates an annual NOI of $250,000. Your proposed commercial mortgage requires monthly payments of $15,625 ($187,500 per year). DSCR = $250,000 / $187,500 = 1.33x Because 1.33x exceeds the bank's standard 1.25x requirement, the deal has a healthy safety cushion ($62,500/year above debt service), making it an attractive candidate for commercial loan approval.

Frequently Asked Questions

What is a good DSCR ratio for commercial real estate?

Most commercial banks and lenders look for a minimum DSCR of 1.20x to 1.25x. Highly stable assets (like long-term net lease properties) may qualify at 1.15x - 1.20x, while riskier assets (such as hotels or unanchored retail) often require 1.35x to 1.50x.

What happens if DSCR falls below 1.0x?

A DSCR below 1.0x indicates negative cash flow — meaning the property does not generate enough income from operations to pay its mortgage. Unless the owner injects personal capital, the deal risks loan default.

How can I improve a deal's DSCR?

You can improve DSCR by increasing NOI (raising rents, adding ancillary revenue, or cutting operating expenses) or by lowering annual debt service (increasing your down payment, negotiating a lower interest rate, or extending the amortization term).

Is DSCR based on gross income or NOI?

DSCR is always calculated using Net Operating Income (NOI), after deducting all property operating expenses and vacancy loss. Gross income is never used for DSCR calculation.

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