1. What is DSCR?

The Debt Service Coverage Ratio (DSCR) is a financial metric used by lenders to evaluate a property's ability to cover its mortgage payments with its net operating income. It's a key indicator of investment property financial health.

2. How Does the Calculator Work?

The calculator uses the DSCR formula:

Where:

• \( \text{Rental Income} \) — Total monthly rental income (USD)
• \( \text{Expenses} \) — Monthly operating expenses (USD)
• \( \text{Mortgage Payment} \) — Total monthly mortgage payment (USD)

Explanation: The ratio shows how many times the property's net operating income covers its debt obligations. Higher values indicate better financial health.

3. Importance of DSCR in Real Estate

Details: Lenders typically require a minimum DSCR of 1.20-1.25 for investment property loans. A ratio below 1 means the property doesn't generate enough income to cover its debt payments.

4. Using the Calculator

Tips: Enter all values in USD. Include all rental income sources, all operating expenses (taxes, insurance, maintenance, etc.), and the total mortgage payment (principal + interest).

5. Frequently Asked Questions (FAQ)

Q1: What is a good DSCR for rental properties?
A: Most lenders want to see at least 1.20-1.25. A ratio of 1.5+ is considered excellent.

Q2: Does DSCR include principal payments?
A: Yes, the mortgage payment should include both principal and interest components.

Q3: How do vacancy rates affect DSCR?
A: Some lenders calculate DSCR using 75% of gross rents to account for potential vacancies.

Q4: Can DSCR be too high?
A: While high DSCR is generally good, extremely high ratios might suggest underutilization of leverage.

Q5: How does DSCR differ from debt-to-income (DTI)?
A: DTI looks at personal income vs debts, while DSCR evaluates property income vs its specific mortgage payment.