Check whether NOI covers debt service — the first test every lender runs.
Check whether the property's income covers its loan payment — the first test every lender runs. Required: NOI and the annual debt service (enter it directly, or derive it from loan amount, rate, and amortization).
NOI vs. annual debt service
Debt Service Coverage
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<1.0 won't fund1.0–1.25 tight1.25+ healthy
Enter NOI and annual debt service to see whether this deal covers its loan.
DSCR = NOI ÷ annual debt service. Most lenders want ≥ 1.20–1.25×. Below 1.0× the property can't cover its loan from operations. Annual debt service can be derived from loan amount, rate, and amortization, or entered directly. The full UpsideIQ underwrite models it at both interest-only and P&I.
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What DSCR measures
The Debt Service Coverage Ratio (DSCR) is the first test a commercial lender runs on a deal: it asks whether the property's income covers its loan payments, and by how much. It is the cushion between what a building earns and what it owes — the margin that keeps a loan current when a tenant leaves or expenses spike.
The formula: DSCR = Net Operating Income (NOI) ÷ Annual Debt Service. If a property produces $300,000 of NOI and the annual mortgage payment (principal + interest) is $240,000, the DSCR is 1.25x — the property earns $1.25 for every $1.00 of debt service.
How lenders read it
A DSCR of 1.0x is break-even: every dollar of income goes straight to the loan, leaving nothing for surprises. Most commercial lenders require a minimum of 1.20x to 1.25x to fund, and many size the loan down until the deal clears that threshold. Below 1.0x the property cannot service its debt from operations — the owner is feeding the mortgage out of pocket, which is how deals default. Agency multifamily lenders often want 1.25x; bank and bridge debt varies with the borrower and the business plan.
How to use the result
If your DSCR comes in under the lender's floor, you have three levers: raise NOI (push rents, cut expenses, or fix an understated income line), lower the loan amount (more equity, lower LTV), or lower the rate or extend amortization to shrink the annual payment. Watch the amortization assumption closely — an interest-only period flatters DSCR today but the number tightens when the loan begins amortizing. A healthy going-in DSCR with room above the minimum is what gives a deal the resilience to survive a soft year without a capital call.
Frequently asked questions
What is a good DSCR?
Most commercial lenders want at least 1.20x to 1.25x. Above 1.25x is comfortable; 1.0–1.20x covers the debt but with a thin cushion; below 1.0x means operations do not cover the loan and the owner must fund the shortfall.
How is DSCR calculated?
Divide annual Net Operating Income by annual debt service (principal + interest). For example, $300,000 NOI ÷ $240,000 of payments = 1.25x DSCR.
Does DSCR use NOI before or after the mortgage?
Before. NOI is income after operating expenses but before debt service; DSCR then compares that NOI to the debt service. Using a number that already subtracts the mortgage would double-count the loan.
Why does my DSCR change with the amortization period?
A longer amortization (or an interest-only period) lowers the annual payment, which raises DSCR. That can make a deal look safer than it is once the loan begins amortizing, so test the fully-amortizing payment, not just the IO period.