DSCR Calculator

What the DSCR tells you

The debt service coverage ratio answers the question every lender asks before financing a rental property: does this asset earn enough to pay its own loan? By dividing a property’s net operating income by its annual debt service, the DSCR distils affordability into a single number. A ratio of 1.0 means income exactly matches the repayments, with no room to spare. A ratio of 1.25 means the property earns 25% more than its loan costs — a healthy cushion. Anything below 1.0 means the property loses money each year and you must fund the gap yourself.

Getting the inputs right

The net operating income is your gross annual rent minus the genuine costs of running the property — municipal tax, insurance, repairs, society charges, management fees and an honest allowance for vacant months. It deliberately excludes the loan repayment and income tax, because the repayment is the very thing you are testing against. The annual debt service is the total principal and interest you pay on the loan over the year, which for most borrowers is simply the monthly EMI times twelve. If the property carries more than one loan, add them together.

Why lenders care

Indian banks and housing-finance companies use DSCR as a gatekeeper for rental and commercial-property loans. Most want to see at least 1.2, and stricter lenders ask for 1.25 to 1.35 on properties they consider riskier — older buildings, weaker locations or single-tenant units. The extra margin protects both sides: if rent dips or an expense spikes, there is still enough income to keep the loan current. A DSCR-based loan is attractive to investors precisely because it leans on the property’s income rather than the borrower’s salary slips.

Improving a weak ratio

If your DSCR comes in below the threshold, you have two levers. You can raise net operating income — push rent to market, cut avoidable expenses, or reduce vacancy — or you can shrink the debt service by putting down a larger deposit, stretching the tenure, or negotiating a lower rate. Because the ratio is sensitive to the loan size, even a modest increase in your down payment can lift a borderline deal above the line. Stress-test the number at a higher interest rate too: a ratio that only just clears 1.2 today can slip under it after a rate hike, so a comfortable buffer is worth building in from the start.