DSCR, the debt service coverage ratio, is a property's net operating income divided by its annual loan payments. A DSCR of 1.25 means the property produces 25 percent more income than the debt costs. Most commercial lenders want 1.20 to 1.25 or better; below 1.0 the property does not cover its own payment, which is bridge-loan territory until income or terms change. The table below shows the maximum loan each $100,000 of NOI supports at different rates and amortizations.
Run your own numbers in the DSCR calculator, including an interest-only toggle for bridge scenarios.
DSCR equals net operating income divided by annual debt service. Take a building producing $200,000 of NOI carrying a $1.5 million loan at 7 percent on a 25-year amortization. The payment runs about $10,602 a month, $127,220 a year. Coverage is $200,000 divided by $127,220, a DSCR of 1.57. That is a strong ratio: the property produces 57 percent more income than its debt costs.
Most banks and agency lenders underwrite to a minimum of 1.20 to 1.25, with some property types and smaller markets pushed to 1.30 or higher. A ratio between 1.0 and 1.2 is thin: the property covers its payment but has little cushion for a vacancy or a repair, and most conventional lenders will pass or cut the loan amount until the ratio works. Below 1.0, the property does not pay for itself. That is not automatically a dead deal, it is a transitional one, and it is exactly where interest-only bridge financing operates while income catches up.
Because the coverage test is arithmetic, you can read your maximum loan straight from a table. The figures below are the largest loan each $100,000 of annual NOI supports at a 1.25 DSCR. The table scales cleanly: a property with $250,000 of NOI supports two and a half times these amounts, and for a lender using a 1.20 requirement, multiply by about 1.04.
Maximum loan per $100,000 of annual NOI at a 1.25 DSCR. Computed from the standard amortizing payment formula; interest-only is annual debt capacity divided by the rate.
Two things jump out of the table. Amortization is worth real money: at 7 percent, moving from a 20-year to a 30-year schedule supports about $142,000 more loan per $100,000 of NOI. And interest-only is worth even more, which is the quiet reason bridge loans can carry transitional properties that amortizing loans cannot.
Four levers move DSCR: raise income (rents, occupancy, expense recovery), cut operating expenses, lower the payment (longer amortization, better rate, interest-only period), or borrow less. On a purchase, the fastest fix is usually a larger down payment; on a refinance, it is often time, letting new leases season until the trailing numbers support the loan you actually want.
Dillan is Managing Partner at BluRidge Funding, where he leads investor relationships and capital operations. He founded Summit Home Loans in 2018 and has spent his career on the capital side of real estate finance, matching deals to the right funding sources. More about the team.
Most commercial lenders want a minimum of 1.20 to 1.25, meaning the property produces 20 to 25 percent more income than its annual debt payments. Stronger ratios earn better terms; below 1.0 the property does not cover its own payment.
Divide net operating income by annual debt service. A property with $200,000 of NOI and $127,220 of annual loan payments has a DSCR of 1.57.
Usually not from a bank, because the property does not cover its payment. Interest-only bridge financing can carry a transitional property while income is built to a level conventional lenders will finance.
Yes, substantially. Removing principal from the payment lowers annual debt service, which is why bridge lenders quote interest-only and why the same NOI supports a much larger interest-only loan.
Enter your NOI and loan terms and get the ratio instantly, with an interest-only toggle.
Read on →Coverage math decides your refinance options when a balloon matures.
Read on →What bridge lenders look at, and where coverage fits in.
Read on →Send the property, the loan amount, and your timeline. We will tell you whether it looks like something we can help with, usually within one business day.
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