How Our DSCR Calculator Works
This page explains exactly how the DSCR Formulas calculator produces its numbers, what assumptions it makes, and why a lender's final DSCR may differ from the estimate shown here. Treat every result as an educational estimate, not a lending decision.
The Formula
DSCR = Net Operating Income (NOI) ÷ Annual Debt Service
Net Operating Income (NOI) is the rental income left after vacancy and operating expenses. Annual Debt Service is the total principal-and-interest payments due in one year.
How the Calculator Computes Each Input
| Input | How it is used |
|---|---|
| Purchase price | Down-payment percentage is applied to calculate the loan amount. |
| Down payment % | Converted to a dollar amount and subtracted from the purchase price. |
| Interest rate | Annual rate converted to a monthly rate for the amortization formula. |
| Loan term | Total number of monthly payments used to calculate P&I. |
| Gross monthly rent | Annualized, then reduced by the vacancy rate to get effective gross income. |
| Vacancy rate | Percentage subtracted from gross annual rent. |
| Operating expenses | Property tax, insurance, HOA, property management, and maintenance are summed monthly and annualized. |
What Is Included in NOI
- Effective gross income (gross rent × (1 − vacancy rate))
- Minus: property tax, insurance, HOA fees, property management, and maintenance
What Is Excluded from This Calculation
- Mortgage payments (these are debt service, not operating expense)
- Capital expenditures (replacements, major renovations)
- Depreciation, income tax, or other accounting items
- Lender overlays such as reserves, seasoning, or liquidity requirements
Why a Lender's DSCR May Differ
Every lender applies its own underwriting overlays. Common differences include:
- Rent source: lender may use appraiser market rent instead of the rent you entered.
- Expense treatment: some lenders apply minimum expense ratios or exclude certain items.
- Debt service definition: some lenders use PITIA (principal, interest, taxes, insurance, association fees) rather than P&I alone.
- Reserves and liquidity: these can affect eligibility but are not part of the DSCR ratio itself.
- Seasoning and property type: short-term rentals, condos, and multi-family properties may be underwritten differently.
Calculator Limitations
This tool runs entirely in your browser. We do not store your inputs, and we cannot see them. The outputs are mathematical estimates based on the inputs you provide. They do not guarantee that any lender will approve your loan, offer the quoted rate, or use the same assumptions.
Worked Example
Assumptions: $300,000 purchase price, 25% down ($75,000), $225,000 loan at 7.25% over 30 years, $2,800 gross monthly rent, 7% vacancy, $450 monthly operating expenses.
- Monthly P&I = ~$1,532
- Annual debt service = $1,532 × 12 = $18,384
- Effective gross income = $2,800 × 12 × (1 − 0.07) = $31,248
- Annual operating expenses = $450 × 12 = $5,400
- NOI = $31,248 − $5,400 = $25,848
- DSCR = $25,848 ÷ $18,384 ≈ 1.41
This is a simplified, educational example. A real lender may arrive at a different number after applying its own underwriting rules.