DSCR (Debt Service Coverage Ratio) measures a property's ability to cover its debt payments. It's calculated by dividing Net Operating Income (NOI) by total debt service. A DSCR of 1.25 means the property generates 25% more income than needed to cover debt payments.

How do you calculate DSCR?

DSCR = Net Operating Income (NOI) / Annual Debt Service. For example, if a property has $500,000 NOI and $400,000 in annual debt payments, the DSCR is 1.25 ($500,000 ÷ $400,000 = 1.25).

DSCR Calculator: Free Debt Service Coverage Ratio Tool (2026)

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Understanding the Result

< 1.0

Negative Cash Flow

Property doesn't cover debt. Loan unlikely to be approved.

1.0 - 1.20

Marginal

Tight coverage. May need guarantees or lower LTV.

> 1.25

Strong

Healthy cushion. Meets most lender requirements.

Example Calculation

A 50-unit multifamily property generates $600,000 in annual NOI. The acquisition loan has annual debt service of $450,000.

DSCR = $600,000 ÷ $450,000 = 1.33

A DSCR of 1.33 means the property generates 33% more income than needed to cover debt payments. This provides a comfortable cushion and would meet most lender requirements for multifamily.

Why DSCR Matters

Loan qualification: Lenders use DSCR as a primary approval criterion. Fannie Mae requires a minimum 1.25x DSCR for conventional multifamily loans.
Pricing impact: Higher DSCR may qualify for better interest rates or higher LTV.
Ongoing covenants: Many loans require maintaining minimum DSCR throughout the term. Dropping below covenant levels can trigger cash sweeps or loan acceleration.
Risk assessment: DSCR shows how much room you have if income drops or expenses rise. According to FDIC data, CRE loan defaults correlate strongly with properties operating below 1.10x DSCR.

DSCR Requirements by Loan Type

Different lenders and loan programs have different DSCR minimums. Here are typical requirements based on Fannie Mae and Freddie Mac guidelines:

Loan Type	Min DSCR	Max LTV	Notes
Fannie Mae DUS	1.25x	80%	Standard multifamily, 5+ units
Freddie Mac SBL	1.20x	80%	Small balance, $1M-$7.5M loans
CMBS	1.25-1.35x	65-75%	Varies by asset class and conduit
Bank / Credit Union	1.20-1.30x	70-80%	Portfolio loans, relationship dependent
SBA 504	1.15x	90%	Owner-occupied commercial property
Bridge / Hard Money	1.00-1.10x	70-85%	Short-term, higher rate, value-add focus

Related Resources

Multifamily Underwriting Guide

Rent Roll Guide + Template

Free Excel download

Frequently Asked Questions

What is a good DSCR for commercial real estate?

Most commercial lenders require a minimum DSCR of 1.20-1.25 for conventional loans. Some asset classes may require higher ratios: multifamily (1.20-1.25), retail (1.25-1.30), office (1.25-1.35). SBA loans may accept DSCRs as low as 1.15.

What happens if DSCR is below 1.0?

A DSCR below 1.0 means the property doesn't generate enough income to cover debt payments. This is a red flag for lenders and typically means the loan won't be approved without additional collateral, guarantees, or a lower loan amount.

How can I improve my DSCR?

You can improve DSCR by: (1) increasing NOI through higher rents or lower expenses, (2) reducing debt service by putting more equity down, (3) getting a lower interest rate, or (4) using a longer amortization period. Each approach has trade-offs.

Is DSCR the only metric lenders look at?

No. Lenders also evaluate LTV (loan-to-value), debt yield, borrower credit and experience, property quality, market conditions, and tenant quality. DSCR is just one piece of the underwriting puzzle, though it's often the most important.

What is the difference between DSCR and debt yield?

DSCR measures income relative to debt payments (NOI / Debt Service). Debt yield measures income relative to total loan amount (NOI / Loan Amount). Debt yield is interest-rate independent, making it useful for comparing loans with different terms. Both metrics are typically evaluated together during underwriting.

Should I use in-place NOI or pro forma NOI for DSCR?

Lenders typically underwrite based on in-place NOI (actual trailing 12-month financials), not projected or pro forma numbers. Some lenders may give partial credit for upside on value-add deals, but the base DSCR calculation should use current operating performance to be conservative.

DSCR Calculator Debt Service Coverage Ratio