The DSCR Formula: How Lenders Actually Compute Debt Service Coverage

Debt Service Coverage Ratio (DSCR) is the single most important number in commercial real estate underwriting. It is the ratio of net operating income to annual debt service — and the threshold that determines whether your deal qualifies for a loan, what the loan amount will be, and what rate you are quoted.

The formula is straightforward: DSCR = NOI ÷ (annual principal + annual interest). The catch is that "NOI" and "debt service" are both lender-defined, and your lender's definition rarely matches yours. Underwriters strip out non-recurring income, replacement reserves, and management addbacks. They underwrite to a market vacancy floor, not your trailing 92% occupancy. They use a stressed interest rate, not the rate on your term sheet.

In this guide we walk through the formula at three lender perspectives — Fannie/Freddie agency, balance-sheet bank, and DSCR-loan programs — and show exactly which adjustments each underwriter applies before calling it DSCR. Then we cover the three places spreadsheets most often diverge from the lender number, and how to model your DSCR so the next term sheet doesn't surprise you.

Full guide coming soon. Want a DSCR computed against agency, bank, and DSCR-loan thresholds today? Run a free screening.