Have a deal?Just plug it in.
Back-of-the-napkin commercial real estate underwriting, in seconds.
5 Second Model · back-of-the-napkin underwriting
Debt Service Coverage
Does the income cover the loan payment? First thing a lender checks.
Debt service coverage ratio is net operating income divided by annual debt service, and it is the first test a commercial lender runs. This calculator shows DSCR alongside the two other tests that decide a loan: debt yield, which is NOI over the loan amount and ignores rate entirely, and the loan constant, which tells you whether leverage will add to your return or subtract from it. If you set an interest-only period, it shows both the flattered IO coverage and the amortizing coverage you have to live with afterwards.
Statement of assumptions & returnsAll figures USD · annual unless noted · click any number to type it exactly
DSCR
--
| Net operating income | -- |
| Annual debt service | -- |
| Cash left after the loan | -- |
| Monthly payment | -- |
| Break-even NOI | -- |
| Interest-only payment | -- |
| Room before you breach 1.25x | -- |
The other two tests a lender runs
| Debt yield | -- |
| Loan constant | -- |
| Implied cap rate needed to break even on debt | -- |
| Occupancy at which coverage hits 1.00x | -- |
Debt yield is NOI divided by the loan — the return a lender would earn if it foreclosed tomorrow. It ignores rate and amortization entirely, which is why it became the post-2008 backstop: 10% is a common floor, and it is the one test a low rate cannot flatter. The loan constant is annual debt service divided by the loan. If your cap rate sits above the constant, leverage adds to your return; below it, leverage subtracts.
Reading it: 1.25x is the common lender floor on stabilized commercial — 1.20x multifamily, 1.30x–1.40x on riskier types. Below 1.00x you are feeding the property out of pocket.
On interest-only: an IO period flatters coverage because you are paying interest and nothing else. Most lenders still test the deal against the amortizing payment, so watch the "after IO" figure — that is the ratio you have to live with once the period burns off, and it is where IO deals get into trouble.
Common questions
- What DSCR do lenders require?
- 1.25x is the common floor on stabilized commercial, 1.20x on multifamily, and 1.30x to 1.40x on riskier asset types. Below 1.00x the property does not cover its own debt.
- What is debt yield and why does it matter?
- Debt yield is NOI divided by the loan — the return a lender would earn if it foreclosed tomorrow. It became the post-2008 backstop precisely because a low interest rate cannot flatter it. Ten percent is a common floor.
- Does interest-only improve DSCR?
- On paper, yes, because you are paying interest and nothing else. Most lenders still test the deal against the amortizing payment, so watch the post-IO figure.