DSR Calculator

What is a DSR Calculator?

A Debt Service Ratio (DSR) calculator, also known as Debt Service Coverage Ratio (DSCR) calculator, helps you evaluate your ability to cover debt obligations with operating income. This metric is crucial for lenders assessing loan applications and investors analyzing real estate or business investments.

How to Use This Calculator

1. Enter Net Operating Income (NOI): Input your annual operating income before debt payments
2. Enter Total Debt Service: Input your total annual debt payments (principal + interest)
3. View Your DSCR: See your ratio and understand what it means for your financial health

Understanding Your Results

DSCR Above 1.0

You generate more income than needed to cover debt payments. A DSCR of 1.25 means you earn $1.25 for every $1 of debt obligations.

DSCR Equal to 1.0

Your income exactly covers your debt payments with no margin for error or unexpected expenses.

DSCR Below 1.0

Your income is insufficient to cover debt obligations, indicating financial stress or difficulty securing loans.

The Formula Behind the Calculation

DSCR Formula: DSCR = Net Operating Income (NOI) / Total Debt Service

Where:

• Net Operating Income (NOI) = Gross Operating Revenue - Operating Expenses
• Total Debt Service = Annual Principal Payments + Annual Interest Payments

Source: Standard financial metric used by banks, commercial lenders, and investors worldwide (Investopedia, Corporate Finance Institute).

DSCR Categories and What They Mean

Excellent (DSCR ≥ 1.50)

• Strong ability to service debt
• Favorable loan terms likely
• Comfortable buffer for unexpected expenses

Good (1.25 - 1.49)

• Solid debt coverage
• Meets most lender requirements
• Some cushion for variations in income

Acceptable (1.15 - 1.24)

• Meets minimum lender thresholds
• Limited margin for income fluctuations
• May face stricter loan terms

Marginal (1.00 - 1.14)

• Barely covers debt obligations
• High risk for lenders
• Difficult to secure new financing

Poor (Below 1.00)

• Income insufficient for debt payments
• Negative cash flow situation
• Immediate financial intervention needed

What is Net Operating Income (NOI)?

For Businesses: NOI is typically calculated as EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), which represents operating performance without financing and accounting effects.

For Real Estate: NOI = Total Rental Income + Ancillary Income - Property Operating Expenses (excluding mortgage payments)

Minimum DSCR Requirements by Loan Type

Frequently Asked Questions

What's a good DSCR for real estate investment?

Most lenders require a minimum DSCR of 1.20-1.25 for commercial real estate. A ratio above 1.50 is considered excellent.

How can I improve my DSCR?

• Increase revenue (raise rents, reduce vacancy)
• Reduce operating expenses
• Refinance to lower interest rates
• Extend loan terms to reduce monthly payments

Is DSCR the same as debt-to-income ratio?

No. DSCR uses Net Operating Income, while debt-to-income ratio uses gross income. DSCR is primarily for business/investment analysis, while DTI is for personal finance.

What happens if DSCR falls below requirements?

Lenders may require reserves, higher interest rates, or additional collateral. In severe cases, they may call the loan or deny refinancing.

Disclaimer: This calculator provides estimates for educational purposes only. Actual lending requirements vary by institution. Consult with a qualified financial professional for specific advice.