Determining the debt service coverage ratio (DSCR) is often a confusing, complicated process for borrowers. However, at NW Alternative Mortgage we've created a simple-to-use DSCR Loan calculator to help you determine if this financing option is the right solution for you.
What Is Debt Service Coverage Ratio (DSCR)?
DSCR is a financial metric to assess whether an investor has enough income to meet their outstanding debts. It is equal to the net operating income (NOI) divided by annual debt service; it indicates their ability to meet obligations from their available cash flow.
A higher DSCR rating indicates a greater ability to cover debt payments. In comparison, a lower rating may lead lenders to question the ability of an individual to keep up with scheduled payments.
Calculating Your DSCR
Knowing your DSCR can help you anticipate how likely you are to get approved for loans and can provide guidance on how best to manage your finances going forward. The formula for calculating DSCR is...
DSCR = Net Operating Income (NOI) ÷ Total Debt Service (TDS)
Where:
Net Operating Income (NOI) is the income generated from a company's normal business operations, typically calculated as revenue minus operating expenses.
Total Debt Service (TDS) refers to the total amount of principal and interest payments due on all outstanding debts over a specified period. It may include payments for loans, leases, and other forms of debt.
To calculate your DSCR simply input your information in the fields below.
What Is a Good Debt Service Coverage Ratio?
A good debt service coverage ratio must be higher than 1.2. The number indicates how often an investor can pay off their current debts with their income before taxes. The closer the ratio is to 1, the more financially stretched someone is. Alternatively, if it is much higher than 1, the investor has the capacity for additional borrowing and probably good cash flow.
To find out if you qualify for our DSCR Loan program contact our team at NW Alternative Mortgage today at 503-343-7999.