Case 1
- Net operating income per year
- 78000
- Loan amount
- 750000
- Annual interest rate
- 6.5%
- Term in years
- 25
1.28
Open with these valuesDebt Service Coverage Ratio Calculator
1.28
Result: 1.28A ratio of 1.0 means the property earns exactly its loan payments and nothing more. Lenders usually want 1.20 to 1.25, and the fastest way to reach it is a longer term rather than a bigger income — which is also why a long term is not automatically good news.
Worked examples
Case 2
- Net operating income per year
- 78000
- Loan amount
- 600000
- Annual interest rate
- 6.5%
- Term in years
- 25
1.60
Open with these valuesCase 3
- Net operating income per year
- 60000
- Loan amount
- 750000
- Annual interest rate
- 6.5%
- Term in years
- 25
0.99
Open with these valuesHow it's calculated
DSCR = net operating income / (payment × 12)
- StepEnter the yearly net operating income — rent less operating costs, before financing.
- StepAdd the loan amount, the rate and the term.
- StepRead the ratio and compare it against the lender's minimum.
- ResultTry a higher rate as a stress test; lenders often do.
What this number means
Below 1.00 the income misses the debt service
The property does not cover its own loan, and the shortfall has to come from somewhere else. Dropping the example income from 78000 to 60000 takes the ratio to 0.99.
Which income figure the calculator wants
Net operating income means rent after operating costs, but before the loan payments and before tax and depreciation. A figure that already has the payments deducted counts the debt twice.
A longer term flatters the ratio
The denominator is the annuity payment times twelve, so stretching the term shrinks it while the income stays put. Going from 25 to 30 years lifts the example from 1.28 to 1.37 without a cent more rent.
Commonly misread
A ratio of 1.00 means the property is fine.
It means the income exactly equals the payments, with no margin for a vacancy. Lenders usually want 1.20 to 1.25.
Net operating income is the rent left after the loan.
It is the rent after operating costs but before financing. Deducting the payments first is the mistake that turns 1.28 into a much smaller number.
The rate barely matters at this coverage level.
It moves the payment, so it moves the ratio. The same example at 7.5 % instead of 6.5 % falls from 1.28 to 1.17, under the usual minimum.
Reference table
| Ratio | How a lender reads it |
|---|---|
| Below 1.00 | The property does not cover its own loan |
| 1.00–1.19 | Covered, but with no margin for a vacancy |
| 1.20–1.25 | The usual minimum for commercial lending |
| Above 1.25 | Comfortable |
Questions
What is the debt service coverage ratio?
Net operating income divided by a year of loan payments. At 78000 income against a 750000 loan at 6.5 % over 25 years, the payments are 60768.64 a year and the ratio is 1.28.
What counts as a good ratio?
The table above shows how lenders usually read it, with 1.20 to 1.25 as the common minimum for commercial lending. Below 1.00 the property does not cover its own loan.
Why does the loan term change the ratio?
A longer term means a smaller yearly payment, so the same income covers it more easily. Stretching the example from 25 to 30 years lifts the ratio from 1.28 to 1.37 without a cent more income.
Should I stress-test the rate?
It is worth doing, and the calculator makes it a single edit. The same example at 7.5 % instead of 6.5 % falls from 1.28 to 1.17 — under the usual minimum.
What goes into net operating income?
Rental income after operating costs, but before the loan payments and before tax and depreciation. Putting a figure in that already had the loan deducted counts the debt twice.
Sources and last check
Information, not financial advice.