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DSCR calculator
Debt service coverage ratio (DSCR) is a property's annual net operating income divided by its annual loan payments. A DSCR of 1.25x means the property earns $1.25 for every $1.00 it owes the lender each year. Most commercial lenders set a minimum, and on many deals coverage, not loan-to-value, is the limit that decides how much you can borrow.
Results are indicative estimates for discussion. They are not a loan offer, a rate quote or a commitment to lend. Nothing you type here is sent anywhere; the math runs in your browser.
How it works
Enter net operating income, the loan amount, the interest rate and the amortization. The calculator finds the level monthly payment, multiplies by twelve for annual debt service, and divides income by that figure. Set the amortization to zero for an interest-only loan.
It also works backward: dividing income by the required coverage gives the debt service the property can carry, and dividing that by the loan constant (annual payment per dollar borrowed) gives the largest loan at that rate and amortization.
Use the lender type menu to start from a typical minimum: HUD Section 232 1.45x, HUD market-rate multifamily 1.15x, agency multifamily 1.25x, SBA 1.25x and hotel CMBS 1.40x. These are Corin's sizing assumptions; each lender sets its own.
Reading the result
If coverage is below the minimum, three levers help: a smaller loan, a longer amortization, or a lower rate. Interest-only periods raise coverage during the interest-only years, but lenders usually test coverage on the amortizing payment as well.
Coverage is only as good as the income behind it. Lenders re-underwrite income, so expect them to adjust vacancy, management fees and reserves before they run the ratio.
Frequently asked questions
What is a good DSCR for a commercial loan?
It depends on the program. Corin's sizing assumptions use 1.15x for HUD market-rate multifamily, 1.25x for agency multifamily, 1.25x for SBA, 1.45x for HUD Section 232 senior housing and 1.40x for hotel CMBS. Each lender sets its own minimum, and many want more cushion than the minimum.
How is DSCR different from debt yield?
DSCR compares income to the loan payment, so it depends on the interest rate and amortization. Debt yield compares income to the loan balance and ignores rate and amortization, which is why lenders use it as a second check.
Does an interest-only loan improve DSCR?
It raises coverage while the loan is interest-only, because there is no principal in the payment. Many lenders size on the amortizing payment anyway, so check which payment your lender tests.
Which income should I enter?
Use net operating income: rents and other property income less operating expenses, before debt service, income taxes and depreciation. A lender will re-underwrite it, so a conservative figure gives a more realistic answer.
Is this a quote?
No. The result is an indicative estimate for discussion. It is not a commitment to lend or a rate lock, and lenders make their own underwriting decisions.
Related financing
- HUD Section 232FHA-insured, long-term, non-recourse debt for licensed healthcare real estate.
- HUD 223(f) multifamilyLong-term, fixed-rate, non-recourse refinance for existing apartment communities.
- Fannie Mae multifamilyFixed-rate, non-recourse agency loans for stabilized apartment communities.
- DSCR investor loansRental property loans underwritten on the property's debt service coverage.
- Hotel CMBSFixed-rate, non-recourse conduit debt for stabilized hotels.
Terms used here
- Debt service coverage ratioDebt service coverage ratio is annual net operating income divided by annual loan payments. A ratio of 1.25x means income is 125% of the payment. Corin's sizing assumptions use 1.15x for HUD market-rate multifamily, 1.25x for agency multifamily, 1.25x for SBA, 1.45x for HUD Section 232 and 1.40x for hotel CMBS.
- Net operating incomeNet operating income is a property's income from rents and other operations less its operating expenses, before debt service, income taxes and depreciation. Lenders re-underwrite it, adjusting vacancy, management fees and reserves, before they size a loan.
- Debt yieldDebt yield is a property's annual net operating income divided by the loan amount. Unlike coverage, it does not depend on the interest rate or amortization, so lenders use it as a second check on how much income stands behind each dollar of loan.
- Loan constantA loan constant is the annual debt service on a loan divided by the loan amount. A 6.00% loan amortized over 30 years has a constant of about 7.19%. Dividing income by the required coverage and then by the constant gives the largest loan the income supports.
- AmortizationAmortization is the schedule on which a loan's principal is repaid through regular payments. A 30-year amortization spreads repayment over 360 months, and a loan can have a shorter term than its amortization, which leaves a balloon payment at maturity.
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