Commercial Real Estate (DSCR) Loan Eligibility Calculator

Understanding Commercial Real Estate (DSCR) Loan Eligibility

The Debt Service Coverage Ratio (DSCR) is a critical metric used by lenders to evaluate commercial real estate loan applications. This calculator helps investors and property owners determine their eligibility for DSCR loans by analyzing their property's income potential against debt obligations.

How Calculations are Derived

The DSCR calculation involves several key components:

1. Net Operating Income (NOI)

   • Calculated by subtracting operating expenses from gross rental income
   • Excludes debt service and depreciation
   • Represents true cash flow potential

2. Total Debt Service

   • Monthly mortgage payment × 12
   • Includes principal and interest
   • Based on requested loan amount, term, and interest rate

3. DSCR Formula

   • DSCR = NOI ÷ Annual Debt Service
   • Minimum acceptable ratio typically 1.25
   • Higher ratios indicate stronger loan qualification

Legal/Financial Implications

• Lenders require minimum DSCR thresholds
• Higher DSCR may qualify for better rates
• Regular monitoring required by loan covenants
• Tax implications for income and expenses
• Property insurance requirements
• Personal guarantees may be required

Case Studies

Case Study 1: Multi-Family Property

• Property Value: $1,000,000
• Annual Rental Income: $120,000
• Operating Expenses: $48,000
• DSCR: 1.45
• Outcome: Approved with favorable terms

Case Study 2: Retail Strip Center

• Property Value: $2,500,000
• Annual Rental Income: $250,000
• Operating Expenses: $100,000
• DSCR: 1.15
• Outcome: Required additional equity injection

FAQ

Q: What is a good DSCR ratio? A: Most lenders require minimum 1.25, but 1.35+ is preferred.

Q: Are personal assets considered? A: DSCR loans focus on property performance, not personal assets.

Q: Can I include projected rent increases? A: Most lenders use current or trailing 12-month figures.

Q: How does vacancy rate affect DSCR? A: Vacancy assumptions reduce effective gross income.

Q: What expenses are included in NOI? A: Property taxes, insurance, utilities, maintenance, management fees.

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