Debt Service Coverage Calculator
Lenders use the debt service coverage ratio (DSCR) to judge whether your income comfortably covers your debt payments. Find yours.
A worked example
Running this tool on current national benchmarks (Federal Reserve / Freddie Mac via FRED (St. Louis Fed)) — swap in your own numbers to see how the result moves.
- Net operating income (annual)
- $150,000
- Total annual debt payments
- $110,000
Strong — comfortably covers debt.
- Net operating income$150,000
- Annual debt service$110,000
- DSCR1.36×
How the debt service coverage ratio changes with net operating income (annual)
Holding the other inputs at the example above, here is how the result moves as net operating income (annual) changes.
| Net operating income (annual) | Debt service coverage ratio | Net operating income |
|---|---|---|
| $80,000 | 0.73× | $80,000 |
| $150,000 | 1.36× | $150,000 |
| $250,000 | 2.27× | $250,000 |
| $400,000 | 3.64× | $400,000 |
The math behind it
The debt service coverage ratio is simply net operating income divided by total annual debt service. A result of 1.0 means income exactly equals debt payments with nothing to spare; above 1.0 means you have a cushion, and below 1.0 means income falls short. The calculator also shows the income cushion — net operating income minus debt service in dollars.
Assumptions & limits
- Net operating income is your income after operating expenses but before debt payments, income taxes, depreciation, and amortization.
- Debt service is the total annual amount paid on all debts, both principal and interest.
- Figures are annual; make sure both inputs cover the same twelve-month period.
- Lender definitions vary — some adjust net operating income for owner salary, one-time items, or a personal-expense factor before computing the ratio.
How to read a DSCR
General guidance; each lender sets its own threshold and adjustments.
| DSCR | What it signals |
|---|---|
| Below 1.0 | Income does not cover debt payments — a shortfall |
| 1.0 to 1.24 | Covers debt but little margin; often too tight for approval |
| 1.25 to 1.50 | The common lender comfort zone |
| Above 1.50 | Strong coverage with room to absorb a downturn |
Common questions
What DSCR do lenders want to see?
Most commercial and real estate lenders look for a DSCR of at least 1.25, meaning your operating income is 1.25 times your debt payments. Some require 1.35 or higher for riskier property types or borrowers. A ratio below 1.0 signals that income does not cover the debt, which almost always blocks approval.
What counts as net operating income?
Net operating income is revenue minus operating expenses, but before debt service, income taxes, depreciation, and amortization. For a rental property it is rental income minus expenses like maintenance, management, insurance, and property tax. Lenders sometimes normalize it — stripping out one-time items or adding back an owner's discretionary salary — so your figure and theirs may differ.
How do I improve a low DSCR?
You either raise net operating income or lower debt service. Raising income means increasing revenue or trimming operating costs. Lowering debt service usually means a longer loan term, a lower rate, or borrowing less — refinancing existing debt into a longer schedule is a common move to lift the ratio ahead of a new loan application.