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DSCR Calculator

What does DSCR Mean?

DSCR or Debt Service Coverage Ratio is a metric used by private lenders to assess the financial strength of a rental property and determine the maximum eligible loan amount or loan-to-value (LTV). DSCR Loans are business purpose loans that use the rental property as collateral, and are most commonly 30 year fixed rate mortgages. DSCR loan programs -- also known as non-QM or non qualifying mortgages -- do not look at the borrowers income or tax returns.

DSCR loans are originated based on three core underwriting components:

  1. Deal economics (DSCR) -- does the rental property generate cash flow?
  2. Borrower credit score -- does the borrower have a history of paying their debts?
  3. Borrower experience -- does the borrower have other investment properties and know what they're doing?

Borrower experience is less important because the borrower can always hire a property management company. Deal economics and credit score are deal breakers. Most rental property investors don't realize just how important their credit score, so read on on how credit score affects your loan amount and interest rate for DSCR loans. Hint: 720 is the magic number!

See DSCR Loan Interest Rate Index.

How to calculate DSCR

Private lenders use two different formulas to calculate DSCR. It's important to understand each method in order to avoid max LTV surprises for your next DSCR loan.

Max LTV for DSCR Loans

Many private lenders have a maximum LTV of 75% for cash out refinance, and 80% for purchases.

DSCR for Vacant Rental Property

It is important to be aware that many lenders will utilize 90% of the appraised rent amount if your property is vacant at settlement. This will reduce your DSCR and may reduce the maximum LTV and loan amount.

DSCR Method 1: NOI ÷ Debt Service

NOI = Rent - Taxes - Insurance - Utilities - HOA - Property Management - Maintenance

Debt Service = Mortgage Principal + Mortgage Interest

Method 2: (Rent - Maintenance - Property Management - Utilities) ÷ PITIA

PITIA = Principal + Interest + Taxes + Insurance + Association Fees

Calculate DSCR

Use the DSCR Calculator above to calculate DSCR using Method 1 and Method 2.

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