DSCR Loan Calculator

DSCR Loan Calculator:

• Annual Rental Property Income

$100,000

• Annual Rental Property Expenses

$30,000

• Yearly Debt Service ($)

$40,000

• Rental Property Price ($)

$200,000

• Loan-to-Value

80%

• Interest Rate (Annually)

8%

DSCR Loan Calculator Results

Definition of DSCR

Definition of DSCR

Debt Service = The total amount of money needed to repay existing debt obligations.

DSCR = Debt Service Coverage Ratio: This is the debt-to-income ratio, which indicates whether the borrower is a good candidate for a new style or translation addition.

Net Operating Income (NOI) = Total Operating Income – Total Operating Expenses

DSCR Loan = This particular kind of real estate loan is intended mostly for rental homes. The potential for income of the rental property is assessed during the loan application procedure.

How to Calculate the DSCR

To compute the DSCR, three essential pieces of information are required.

• Annual Income
• Annual Expenditure
• Annual debt obligations

You have everything you need to enter into the DSCR formula with these three pieces of information.

DSCR Formula for Real Estate

DSCR Real Estate Example

To finish this DSCR example, let’s assume that you or your company meets the following requirements.

• Annual Income: $60,000
• Annual Expenses: $22,000
• Annual Debt Obligations: $18,000

All you have to do now is to enter this information into the formula for calculating the debt service.

Formula for DSCR = NOI / Total Debt Obligations

• DSCR = ($60,000 – $22,000)/$18,000
• DSCR = 2.11

DSCR Formula for a Business

Calculating debt service for a business is slightly different from calculating debt service for real estate.

The primary distinction is that EBITDA should be used instead of NOI, It stands for profits before taxes, interest, amortization, and depreciation.

How To Calculate Loan Amounts Using DSCR

The purchase price of the rental property must be considered to obtain an accurate approximation of the loan value.

If one wants to estimate the maximum loan amount a lender is willing to grant, Loan-to-Value is a significantly more useful metric.

Lenders typically offer 80% Loan-to-Value rates in the present market conditions. This indicates that the lender can lend up to 80% of the rental property’s original purchase price.

Next, the loan terms are adjusted based on the borrower’s DSCR, which may have an impact on the interest rate, monthly repayment schedule, and origination charge that is provided.

What Do the Results Mean For A Borrower

The debt service coverage ratio formula’s primary objective is to ascertain whether the borrower or firm has positive cash flow.

Consider it this way, if it helps:

DSCR > 1

If the DSCR ratio is less than 1, the property is cash flow negative. This indicates that debt payments are greater than net operating income. If these requirements are met, the lender will not approve the loan.

DSCR = 1

In this case, the NOI is the entire amount of debt, which is the same as not breaking even.

DSCR > 1

If the DSCR is higher than 1, the property is cash flow positive. In other words, the NOI represents the underlying business entity, which is bigger than the entire debt commitment.

• A business with a high DSCR (higher than 1) makes enough money to pay its debt.
• A corporation can only pay its debts if its debt-to-share ratio (DSCR) is low (higher than 1).

Additional Note

For a lender to consider lending money to a borrower, the DSCR typically needs to be higher than 1.25. This gives the loan originator a margin of safety in the event that market conditions deteriorate.

There are situations in which a DSCR lender might agree to approve a loan even if the DSCR is below 1.25.

This will result in an interest rate increase, a decrease in the overall loan amount, or both.

Interest Rate	from 7.5	Term	30-yr fixed rate
Origination fee	2-3%	Maximum Loan Amount	$150,000
Loan To Purchase Prices up to	80%	Maximum Loan Amount	$3,000,000
Loan To Value up to	80%	Minimum FICO	660
Minimum DSCR	None	Type of Property	Residential 1-4 units

Additional Resources

DSCR Loan

DSCR loan financing is an exclusive instrument created especially for real estate investors. The loan terms consider the rental property’s cash flow situation, making it ideal for investors in rental properties.