Your DSCR calculation made easy with our free loan calculator.
Don’t be intimidated by a DSCR loan. If the property cash flows, then you have a pretty good shot at getting approved.
And there’s a simple way to find out the cash flow of a rental property: the debt service coverage ratio.
Underwriters use this ratio to determine if a property is positively cash flowing. It’s an important metric to understand if you want to maximize your leverage and get the most out of your investments.
Now, let’s go over how to calculate DSCR quickly and understand what it means for your property.
What Is a DSCR in Real Estate?
Firstly, let’s define what DSCR is. It’s a ratio that compares a property’s income to its expenses.
You calculate DSCR by dividing the property’s income (rents) by its expenses (monthly mortgage payment, taxes, insurance, and HOA if applicable). A ratio of greater than 1 means the property is cash flowing, which is what both you and your lender want to see.
So, the higher the ratio, the better the cash flow, and the more money in your pocket.
For a DSCR loan, the higher this ratio is, the better the terms your loan will have.
Expenses & Income for DSCR Calculation
Next, to find out the expenses your DSCR loan will consider, you’ll add together four items:
- Property Tax
- HOA Fees
Finally, to find out the income, you’ll need to check out what rents are in the area for comparable properties.
How to Calculate DSCR Quickly
Watch the video here: