Guide
How to calculate DSCR
Team RE Underwrite Lab
What the ratio is asking
Debt service coverage asks whether the income figure covers the debt figure. It is a division, not a credit decision. Lenders define income, taxes, and the payment their own way, and they set their own minimums. This page does not.
The DSCR calculator divides the two annual numbers you type. This article shows the same division with different sample figures, so the guide is not a copy of the calculator's defaults.
Formula
DSCR = annual NOI ÷ annual debt service. If debt service is zero, the ratio is undefined.
NOI must be before the loan payment. Subtract operating expenses, not debt; the debt belongs only in the denominator.
Example
Illustrative example. Annual NOI of $41,200 divided by annual debt service of $35,800 is about 1.15, because 41,200 ÷ 35,800 = 1.1508. These two figures are made up so the division is visible. They are not a lender's worksheet and not an approval.
If the same NOI is paired with annual debt of $43,000, the ratio falls below 1. The page will not tell you whether a lender accepts either result.
Common pitfalls
Dividing by a monthly payment instead of the annual total produces a ratio near twelve when you meant a number near one. Check the units before you read the result.
A ratio above 1.00 only compares the two numbers on the page. Reserves, credit, property type, and a lender's minimum are not in the division.
Steps
Set annual NOI
Use income after vacancy and operating expenses, and before the loan payment.
Set annual debt service
Use twelve months of principal and interest, or the annual total on the term sheet. Do not leave the figure monthly.
Divide
DSCR equals annual NOI divided by annual debt service. Above 1.00, the NOI you typed is larger than the debt you typed.
Questions
Is 1.15 a minimum a lender will use?
Not from this page. Lenders publish their own minimums, and they may count income differently than the NOI you typed.
Should taxes sit in NOI or in the payment?
If the NOI you type already subtracted taxes, do not also fold those taxes into debt service. Pick one place.
How is this different from the mortgage calculator?
The mortgage calculator amortizes a loan and shows a payment. This ratio only divides an income figure by a debt figure.
What if the property is not rented yet?
Then NOI is a forecast you typed, not collections. The ratio is only as firm as that forecast.
Can DSCR be negative?
If you type negative NOI, the ratio is negative. That means the income figure you entered is a loss before debt.
Example only. Not financial, investment, legal, tax, lending, or appraisal advice.
Estimates only. Not financial, legal, tax, or investment advice. RE Underwrite Lab calculators and PDF reports provide educational estimates based on the numbers you enter. Actual purchase costs, rents, expenses, financing terms, taxes, insurance, vacancy, rehab costs, refinance eligibility, and returns vary by property, market, lender, and local law (including short-term rental rules). We do not guarantee any outcome, profit, cash flow, or appraisal. Some content and tools may be generated or assisted by artificial intelligence and can contain errors. Always verify assumptions with licensed professionals and your own due diligence before making decisions.