DSCR Calculator: Will Your Property Cover Its Loan?

Is a DSCR of 1.25 enough?

On the defaults — $120,000.00 of net operating income and $96,000.00 of annual debt service — the DSCR is 1.25, the monthly debt service is $8,000.00, the most debt service the lender allows at the 1.25 bar is $96,000.00 a year, and the income needed at that bar is $120,000.00 a year. DSCR is net operating income divided by total debt service, both measured over the same year. Net operating income is the property’s gross operating income minus its operating expenses — before debt payments, income taxes and depreciation. Lenders usually want a DSCR of at least 1.20 to 1.25 before they approve a commercial loan: at 1.25 the property earns $1.25 for every $1.00 of loan payments. Below 1.00 the property does not earn enough to cover its loan payments at all.

Four things about the model are worth stating plainly. First, the DSCR is the income divided by the debt service — $120,000.00 ÷ $96,000.00 = 1.25. Second, the monthly debt service is the annual debt service divided by 12 — $96,000.00 ÷ 12 = $8,000.00. Third, the most debt service the lender allows at their bar is the income divided by the bar — $120,000.00 ÷ 1.25 = $96,000.00 a year. And fourth, the income needed at their bar is the bar times the debt service — 1.25 × $96,000.00 = $120,000.00; all listed in Accuracy & limitations.

The worked example, line by line

Setup: $120,000.00 of annual net operating income, $96,000.00 of annual debt service, lender minimum DSCR 1.25.

Line 1 — the DSCR. The DSCR is $120,000.00 ÷ $96,000.00 = 1.25.

Line 2 — the monthly debt service. The monthly debt service is $96,000.00 ÷ 12 = $8,000.00.

Line 3 — the most debt service allowed. The most debt service the lender allows at the 1.25 bar is $120,000.00 ÷ 1.25 = $96,000.00 a year.

Line 4 — the income needed. The income needed at the 1.25 bar is 1.25 × $96,000.00 = $120,000.00.

Line 5 — the cushion. The income left over after the loan payments is $120,000.00 − $96,000.00 = $24,000.00 a year — the 0.25 of headroom the 1.25 ratio gives.

Line 6 — the check. 1.25 × $96,000.00 = $120,000.00, the income; and $8,000.00 × 12 = $96,000.00, the annual debt service.

Every branch, checked

NOI $150,000: DSCR 1.56; monthly debt service $8,000.00; most debt service allowed at the 1.25 bar $120,000.00 a year; income needed at the 1.25 bar $120,000.00 a year — With $150,000.00 of income the ratio rises to 1.56 — the property earns $1.56 for every $1.00 of loan payments, and the lender would allow up to $120,000.00 a year of debt service at the 1.25 bar.

NOI $100,000: DSCR 1.04; monthly debt service $8,000.00; most debt service allowed at the 1.25 bar $80,000.00 a year; income needed at the 1.25 bar $120,000.00 a year — With $100,000.00 of income the ratio falls to 1.04 — above 1.00, so the property still covers its payments, but below the 1.20–1.25 range most lenders want, and the lender would allow only $80,000.00 a year of debt service at the 1.25 bar.

Debt service $80,000: DSCR 1.50; monthly debt service $6,666.67; most debt service allowed at the 1.25 bar $96,000.00 a year; income needed at the 1.25 bar $100,000.00 a year — Cutting the debt service to $80,000.00 a year lifts the ratio to 1.50 — the property earns $1.50 for every $1.00 of loan payments, and the monthly debt service falls to $6,666.67.

Debt service $120,000: DSCR 1.00; monthly debt service $10,000.00; most debt service allowed at the 1.25 bar $96,000.00 a year; income needed at the 1.25 bar $150,000.00 a year — With debt service of $120,000.00 a year the ratio is exactly 1.00 — the property exactly covers its payments, with nothing left over.

NOI $180,000, debt service $120,000: DSCR 1.50; monthly debt service $10,000.00; most debt service allowed at the 1.25 bar $144,000.00 a year; income needed at the 1.25 bar $150,000.00 a year — A bigger property with $180,000.00 of income and $120,000.00 of debt service also sits at 1.50 — the same ratio as the $80,000.00 debt-service branch, because the income and the debt service both rose by the same proportion.

Monthly view — NOI $10,000/month, debt service $8,000/month: DSCR 1.25 — NOI $10,000.00 a month over debt service $8,000.00 a month gives the same ratio, because the period cancels — Measured monthly instead of yearly, the ratio is still 1.25 — $10,000.00 over $8,000.00 is the same fraction as $120,000.00 over $96,000.00. The period cancels, so a monthly view and an annual view give the same DSCR.

NOI $90,000: DSCR 0.94; monthly debt service $8,000.00; most debt service allowed at the 1.25 bar $72,000.00 a year; income needed at the 1.25 bar $120,000.00 a year — With $90,000.00 of income the ratio is 0.94 — below 1.00, so the property does not cover its loan payments at all, and the lender would allow only $72,000.00 a year of debt service at the 1.25 bar.

The reverses, worked backwards

Smallest whole-dollar annual NOI for the DSCR to reach 1.25: At the displayed $120,000 the figures are DSCR 1.25; monthly debt service $8,000.00; most debt service allowed at the 1.25 bar $96,000.00 a year; income needed at the 1.25 bar $120,000.00 a year. At the displayed $120,000 the DSCR is 1.25. At $119,999 the unrounded DSCR is 1.249990 — it shows as 1.25 only after rounding, and it is still below the 1.25 line, so $120,000 is the smallest whole-dollar income that reaches the bar.

Smallest whole-dollar annual NOI for the DSCR to reach 1.20: At the displayed $115,200 the figures are DSCR 1.20; monthly debt service $8,000.00; most debt service allowed at the 1.20 bar $96,000.00 a year; income needed at the 1.20 bar $115,200.00 a year. At the displayed $115,200 the DSCR is 1.20. At $115,199 the unrounded DSCR is 1.199990 — it shows as 1.20 only after rounding, and it is still below the 1.20 line, so $115,200 is the smallest whole-dollar income that reaches the lower bar.

Largest whole-dollar annual debt service for the DSCR to STAY at or above 1.25: At the displayed $96,000 the figures are DSCR 1.25; monthly debt service $8,000.00; most debt service allowed at the 1.25 bar $96,000.00 a year; income needed at the 1.25 bar $120,000.00 a year. At the displayed $96,000 the DSCR is 1.25. At $96,001 the unrounded DSCR is 1.249987 — it shows as 1.25 only after rounding, and it is still below the 1.25 line, so $96,000 is the largest whole-dollar debt service for the ratio to stay at or above the bar.

Smallest whole-dollar annual NOI for the DSCR to reach 1.50: At the displayed $144,000 the figures are DSCR 1.50; monthly debt service $8,000.00; most debt service allowed at the 1.50 bar $96,000.00 a year; income needed at the 1.50 bar $144,000.00 a year. At the displayed $144,000 the DSCR is 1.50. At $143,999 the unrounded DSCR is 1.499990 — it shows as 1.50 only after rounding, and it is still below the 1.50 line, so $144,000 is the smallest whole-dollar income that reaches 1.50.

Smallest whole-dollar annual NOI for the DSCR to reach 1.00: At the displayed $96,000 the figures are DSCR 1.00; monthly debt service $8,000.00; most debt service allowed at the 1.00 bar $96,000.00 a year; income needed at the 1.00 bar $96,000.00 a year. At the displayed $96,000 the DSCR is 1.00. At $95,999 the unrounded DSCR is 0.999990 — it shows as 1.00 only after rounding, and it is still below the 1.00 line, so $96,000 is the smallest whole-dollar income that covers the payments at all.

Largest whole-dollar annual debt service for the DSCR to STAY at or above 1.20: At the displayed $100,000 the figures are DSCR 1.20; monthly debt service $8,333.33; most debt service allowed at the 1.20 bar $100,000.00 a year; income needed at the 1.20 bar $120,000.00 a year. At the displayed $100,000 the DSCR is 1.20. At $100,001 the unrounded DSCR is 1.199988 — it shows as 1.20 only after rounding, and it is still below the 1.20 line, so $100,000 is the largest whole-dollar debt service for the ratio to stay at or above 1.20.

A warning about the neighbours: every neighbour above shows as the target when rounded to two decimals, but its unrounded ratio is short of the target. A lender underwriting on the unrounded ratio would still say no. The page prints the unrounded neighbour value in full so the rounding does not mislead you.

What the defaults assume

The defaults are $120,000.00 of annual net operating income, $96,000.00 of annual debt service and a lender minimum DSCR of 1.25 — DSCR 1.25; monthly debt service $8,000.00; most debt service allowed at the 1.25 bar $96,000.00 a year; income needed at the 1.25 bar $120,000.00 a year. With NOI $150,000, DSCR 1.56; monthly debt service $8,000.00; most debt service allowed at the 1.25 bar $120,000.00 a year; income needed at the 1.25 bar $120,000.00 a year. With NOI $100,000, DSCR 1.04; monthly debt service $8,000.00; most debt service allowed at the 1.25 bar $80,000.00 a year; income needed at the 1.25 bar $120,000.00 a year. With Debt service $80,000, DSCR 1.50; monthly debt service $6,666.67; most debt service allowed at the 1.25 bar $96,000.00 a year; income needed at the 1.25 bar $100,000.00 a year. With Debt service $120,000, DSCR 1.00; monthly debt service $10,000.00; most debt service allowed at the 1.25 bar $96,000.00 a year; income needed at the 1.25 bar $150,000.00 a year. With NOI $180,000, debt service $120,000, DSCR 1.50; monthly debt service $10,000.00; most debt service allowed at the 1.25 bar $144,000.00 a year; income needed at the 1.25 bar $150,000.00 a year. With Monthly view — NOI $10,000/month, debt service $8,000/month, DSCR 1.25 — NOI $10,000.00 a month over debt service $8,000.00 a month gives the same ratio, because the period cancels. With NOI $90,000, DSCR 0.94; monthly debt service $8,000.00; most debt service allowed at the 1.25 bar $72,000.00 a year; income needed at the 1.25 bar $120,000.00 a year. With NOI $0, DSCR 0.00; monthly debt service $8,000.00; most debt service allowed at the 1.25 bar $0.00 a year; income needed at the 1.25 bar $120,000.00 a year. With Debt service $0, DSCR — (undefined: no debt service to cover); monthly debt service $0.00; most debt service allowed at the 1.25 bar $96,000.00 a year; income needed at the 1.25 bar $0.00 a year — the ratio cannot be computed, never Infinity or NaN. With NOI $240,000, debt service $96,000, DSCR 2.50; monthly debt service $8,000.00; most debt service allowed at the 1.25 bar $192,000.00 a year; income needed at the 1.25 bar $120,000.00 a year. With NOI $60,000, debt service $96,000, DSCR 0.63; monthly debt service $8,000.00; most debt service allowed at the 1.25 bar $48,000.00 a year; income needed at the 1.25 bar $120,000.00 a year — the unrounded ratio is 0.625000, which rounds half-up to 0.63. With NOI $100,000, debt service $33,333, DSCR 3.00; monthly debt service $2,777.75; most debt service allowed at the 1.25 bar $80,000.00 a year; income needed at the 1.25 bar $41,666.25 a year — the unrounded ratio is 3.000030, which rounds to 3.00. With NOI $123,456, debt service $98,765, DSCR 1.25; monthly debt service $8,230.42; most debt service allowed at the 1.25 bar $98,764.80 a year; income needed at the 1.25 bar $123,456.25 a year — the unrounded ratio is 1.249997, shown as 1.25, just under the 1.25 line. With Lender bars — NOI $120,000, Most debt service allowed at the 1.25 bar $96,000.00 a year; at the 1.20 bar $100,000.00 a year.

Output · formula · meaning

Who uses this

• The investor sizing a commercial loan: they learn a $120,000.00 income over $96,000.00 of debt service is a DSCR of 1.25 — and they check the $120,000 reverse to see the smallest income that reaches the bar.
• The buyer whose lender wants 1.25: they learn the most debt service allowed at the 1.25 bar is $96,000.00 a year — and they check the $96,000 reverse to see the largest debt service that stays at or above the bar.
• The owner whose income slipped to $100,000.00: they learn the ratio is 1.04 — the property still covers its payments, but below the 1.20–1.25 range — and they check the $115,200 reverse to see the income that reaches 1.20.
• The analyst checking a 0.94 property: they learn a ratio below 1.00 means the property does not cover its loan payments at all — and they check the $96,000 reverse to see the income that would bring it back to 1.00.

Accuracy & limitations

The math is first-principles: the DSCR is the annual net operating income divided by the annual debt service, rounded to two decimals half-up; the monthly debt service is the annual debt service divided by 12, rounded to cents half-up; the most debt service allowed at the bar is the income divided by the bar; the income needed at the bar is the bar times the debt service. The reverses are judged on the UNROUNDED ratio: a neighbour one dollar short shows as the target when rounded to two decimals, but its unrounded ratio is below the target, so it does not meet the bar — the page prints the unrounded neighbour value in full. What the model cannot do is judge the property: net operating income is gross operating income minus operating expenses, before debt payments, income taxes and depreciation, and a lender will check the rent roll, the vacancy rate and the expense history behind the number; the 1.20–1.25 bar is the usual range, not a rule, and some lenders want more; and the ratio says nothing about the loan term, the rate, or whether the property is a good buy. Use it to see whether the income covers the payments — then let the lender underwrite the rest.

Frequently asked questions