This DSCR qualification calculator can help you determine your debt service coverage ratio to ensure the gross rental income is high enough to repay the loan and provide a return on investment. Please keep reading to learn how to calculate DSCR, or use our calculator below to help you determine whether you qualify for a loan. This is a unique DSCR calculator that lenders use to determine eligibility. Lenders do not consider expenses such as management, maintenance, utilities, vacancy, and repairs; therefore, DSCR is not calculated based on Net Operating Income (NOI) but rather gross rental income into total mortgage payments, including taxes, insurance, and HOA (if applicable). Use this calculator to determine how much lenders will loan to you. This is the same calculator that our underwriters use to approve your loan.

How Do I Calculate DSCR?

Our calculator makes finding your DSCR easy. We only need a few key pieces of information to help you determine whether you can qualify for a DSCR loan. Here’s how to calculate DSCR:

Our calculator makes finding your DSCR easy. We only need a few key pieces of information to help you determine whether you can qualify for a DSCR loan. Here’s how to calculate DSCR:

1. Enter the Purchase Price

Enter the total cost of your property.

2. Enter your Down Payment

The minimum down payment required on a DSCR loan is 20%.

3. Enter the Interest Rate

Interest rates vary depending on credit score and change throughout the year. You can find today’s current interest rates by quickly searching online or visiting this page. No income mortgage DSCR loan rates are typically 2-4% higher than a full documentation conventional loan.

4. Total Loan Amount

The loan amount will automatically calculate based on your purchase price and down payment. Loan amounts vary, with limits up to $5 million. The lender will determine your total loan amount based on your DSCR. However, you can enter how much you need to borrow into our DSCR calculator to help you find your DSCR.

5. Tell Us Your Loan Term in Years

DSCR loans have terms of anywhere from 10 to 40 years, with the length determined by the lender based on several financial factors, such as property type and projected cash flow.

6. Loan Payment

The DSCR calculator will determine your monthly principal and interest or interest-only loan payment based on the other information you’ve given us.

7. Estimated Taxes

The DSCR loan calculator will estimate the monthly taxes automatically for you at 1.25% of the purchase price of the real estate investment property. However, you can enter in your own number if you’d like to make it more accurate.

8. Enter Estimated Homeowner Insurance

Enter the monthly estimated homeowner’s insurance. On investment properties, this insurance is known as “landlord insurance.” Most people enter $100-300/mo.

9. Enter HOA Fees

If the property has a monthly HOA fee, please enter it. If you don’t know the HOA fee, you can ask your Realtor or look it up online on the property listing. If the property does not have an HOA fee, please leave it blank.

10. Choose an Interest-Only Loan or a Fully-Amortized Loan

To increase your DSCR, you may want to consider an interest-only loan. Avoiding principal payments for the first ten years of the loan could help increase cash flow from the get-go.

11. Enter Gross Rental Income

Let us know how much you expect to earn from the property in monthly gross rental income. For example, if you purchase a duplex, your income will include total rent payments – maybe one unit is a long-term rental (LTR), and the other unit is a short-term rental (STR).

12. Review Your DSCR

Once you’ve entered all the necessary information, our DSCR calculator will give you a decimal. This final number is the debt service coverage ratio lenders use to determine your eligibility for a loan. Griffin Funding will fund loans with a DSCR as low as .75. However, you ideally want a DSCR of 1.25 or greater.

What Is a Debt Service Coverage Ratio (DSCR)?

Debt service coverage ratio (DSCR) is a metric used by lenders and investors to determine how well a rental property performs. For example, investors might use it to determine if they’re making a profit, while lenders use it to determine a borrower’s ability to repay a loan.

Real estate investors may have lower taxable income because they take deductions on their tax returns. With conventional loans, this adjusted income might not be enough to qualify. Instead, lenders can use the DSCR to determine eligibility based on cash flow, demonstrating if the property generates enough income for a borrower to repay the loan. Additionally, the higher a DSCR, the more an investor earns, which is crucial for determining if they can turn a profit after paying their debts and provide them with a cushion for paying additional expenses.

It’s important to note that DSCR loans are designed for real estate investors. Therefore, to purchase a primary residence, you’ll need to choose another type of funding, such as a conventional mortgage, Non-QM loan, or a first-time home buyer grant.

What DSCR Do I Need to Qualify for a Loan?

A DSCR of 1 demonstrates that you have enough cash flow to repay the loan. However, most lenders require borrowers to have a higher DSCR because it allows for extra cash for expenses that won’t compromise their ability to repay the loan. The higher your DSCR, the stronger your position and the more likely you’ll be eligible for a loan.

The minimum DSCR required for a loan varies by lender and condition of the economy. For example, lenders may accept lower ratios if more credit is available. That said, lenders usually require a DSCR of at least 1.25.

Borrowers may still qualify for a loan with a lower DSCR as long as they can prove their ability to repay the loan in other ways, such as using personal income documentation. Griffin Funding allows you to qualify for a loan with a DSCR as low as 0.75. However, a higher DSCR can get you better terms and reduce your interest rate.

DSCR Formula

Again, the debt service coverage ratio is the decimal used to compare your net cash flow to your mortgage debt. Our calculator uses this DSCR formula to calculate your ratio: DSCR= monthly NOI/debt payments.

In this calculation, the GI is your gross income — the monthly rent your tenants pay you.

How Does DSCR Affect the Loan Approval Process?

Your DSCR is one of the most significant metrics lenders use to determine loan eligibility and amounts, so you must ensure your ratio meets those requirements. However, since these loans are based on the GI of a property, qualifying is easier than some other types of mortgage loans. The application process is also much more streamlined since the requirements for DSCR loans are more flexible than other types of financing.

The DSCR loan approval process works similarly to other real estate loans. For example, after loan approval, you’ll be required to pay closing costs, including origination, discount points, appraisal, and escrow fees. Additionally, if you’ve put down an earnest money deposit, we can provide a streamlined experience to help you get approval and funding quickly.

Can a Low DSCR Be Improved?

We recommend calculating DSCR before applying for a loan to ensure you can prove your ability to repay. If your DSCR is too low, you may not qualify for a loan, or your maximum loan amount might be too low to purchase property. Additionally, increasing your DSCR can reduce interest rates and improve the odds of getting approved. A few ways borrowers can improve a low DSCR before applying for a loan include:

  • Reducing operating costs
  • Increasing rental income
  • Refinancing the existing mortgage
  • Raising the property value

You still have options if you don’t qualify for a DSCR loan based on your ratio. Griffin has more flexible requirements than other lenders, but if you fall below our requirements, you might qualify for another loan you can use for investing. For example, you can compare HELOC vs. Home Equity loans to determine whether your primary residence has enough built-up equity to fund your purchase.

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How Does DSCR Differ from Other Financial Ratios?

DSCR is just one financial ratio lenders use to determine loan eligibility for investors. However, depending on the type of loan you get, there are a few other ratios to consider, including the following:

  • Interest coverage ratio: The interest coverage ratio compares your profits to the interest payment on debts instead of the total amount of debt itself. This ratio is similar to DSCR and can be used to help lenders determine if a company or borrower can pay back its debt.
  • Asset coverage ratio: This ratio compares your ability to cover debt services by selling off assets.
  • Cash coverage ratio: The cash coverage ratio determines if you can repay your debt using cash on hand.

Final Notes

DSCR loans can help investors of all types qualify for a loan based on cash flow instead of personal income. Griffin Funding can calculate your DSCR to determine your ability to repay the loan and the amount you qualify for. Then, once you’re ready to invest in real estate, you can apply for a DSCR loan. Our mortgage experts can guide you through every step of the process — from application to closing — for a streamlined experience. Apply for a DSCR loan with Griffin Funding today.

Disclaimer: This dscr loan calculator is not a loan approval and is not a commitment to lend.