DSCR Calculator
Check the debt service coverage ratio for an investment property loan. Enter the price, loan and rent, and see whether the rent covers the monthly payment.
The numbers below are an example. Replace them with your own.
How to use the calculator
- Enter the purchase price and the share of it you plan to borrow.
- Add the interest rate and term from a lender's quote, and choose principal and interest or interest only.
- Enter the monthly rent, and the yearly tax and insurance. Add any monthly HOA fee.
- Optionally set a target DSCR to see the largest loan that meets it.
How the calculation works
- Loan = price × loan-to-value.
- Principal and interest = loan × r ÷ (1 − (1 + r)−n), where r is the monthly rate and n the number of monthly payments. For an interest-only loan it is loan × r.
- PITIA = principal and interest + monthly tax + monthly insurance + HOA fees.
- DSCR = monthly rent ÷ PITIA.
- Largest loan at a target: work out the largest PITIA that rent allows (rent ÷ target), subtract tax, insurance and HOA, and find the loan that gives that principal and interest payment.
Worked example
A $350,000 property with a 75 percent loan, a 7.5 percent 30-year rate, $2,800 monthly rent, $3,850 property tax and $1,752 insurance a year. These are example figures, not a forecast. They follow a published lender example, so you can compare.
- Loan: $262,500. Principal and interest: $1,835 a month.
- Tax $321 and insurance $146 a month.
- PITIA: $2,302 a month.
- DSCR: $2,800 ÷ $2,302 = 1.22.
- At a target of 1.25, the largest loan is $253,594, or 72.5% of the price. The rent needed for the full loan is $2,878 a month.
- If the same loan were interest only, the payment falls to $1,641 and the DSCR rises to 1.33.
What lenders do differently
Lenders may not accept the rent you expect. They can use a signed lease or a market rent estimate, sometimes the lower of the two. They may also treat vacancy, reserves, short-term rentals and other conditions their own way, and their minimum ratio and loan-to-value limits vary. Treat the result here as a first check.
Questions
What is a good DSCR?
A ratio of 1.00 means rent exactly covers the payment. Above 1.00 means there is a cushion, and below 1.00 means rent does not cover it. Lenders set their own minimums, and some size loans to a DSCR of 1.25 while others accept lower. Ask your lender what they require.
Is this the same DSCR a bank uses on a commercial loan?
Not quite. DSCR loans for investment homes usually divide rent by the full monthly payment, including taxes and insurance. Commercial lenders usually divide net operating income by loan payments. The Rental Property Calculator on this site shows the second version.
What does PITIA mean?
Principal, interest, taxes, insurance and association dues. It is the full monthly cost of holding the loan and the property, and it is the number rent is compared against.
Why does an interest-only loan improve the ratio?
An interest-only payment is smaller, because none of it goes to paying down the loan. In the example above, switching to interest only moves the ratio from about 1.22 to about 1.33. The loan balance does not fall during the interest-only period.
What rent should I enter?
Use the rent a lender will accept, which is usually based on a signed lease or a market rent estimate. Lenders may use the lower of the two, so check how yours does it.
Does a lender's number match this calculator?
It may not. Lenders can treat vacancy, reserves, short-term rentals and unusual leases differently. Use this as a first check, then get the lender's own figure.
Is this financial advice?
No. It applies a standard formula to the figures you enter. Check the numbers with a lender or qualified adviser before you commit.