Does the property carry itself? Debt service coverage on a rental or commercial file, plus the largest loan that still clears the lender target.
How this tool worksNet operating income is gross rent less the vacancy allowance and the operating expense ratio. Payments use semi annual compounding.
Coverage is short of the target. Reduce the loan, extend the amortization or revisit the rent roll.
An estimate only. Lenders differ on vacancy assumptions, expense loads and whether they use market or actual rent. Send the file to our Deal Desk for a structured second opinion.
Debt service coverage ratio is net operating income divided by annual debt service. Net operating income is the property's rent and other income after vacancy, operating expenses, property taxes, insurance and management, but before mortgage payments, income tax and capital spending. A DSCR of 1.25 means the property earns $1.25 for every $1.00 of mortgage payment.
On commercial and multifamily files the lender sizes the loan two ways and takes the lower: loan to value against the appraisal, and the loan that the property's income can service at the lender's minimum coverage. Conventional commercial lenders commonly want 1.20 to 1.25. Insured multifamily programmes can accept lower coverage because the insurer carries the risk. Private commercial lenders may accept lower still and price for it. Coverage is calculated at the lender's underwriting rate and amortization, not the rate on the commitment.
The tool takes the annual rent you enter, deducts a vacancy allowance and an operating expense ratio that stands in for taxes, insurance, management, utilities and repairs together, and arrives at net operating income. It builds annual debt service from the loan amount, rate and amortization you set, with semi annual compounding, and divides. It also works backwards: given the coverage you set as the target, it shows the largest loan the income supports at that rate and amortization.
Lenders underwrite their own income, not the owner's. They apply a vacancy allowance even to a fully leased building, commonly three to five percent. They charge a management fee even when the owner self manages. They add a replacement reserve per unit or per square foot. They may use market rent where it is lower than in place rent, and they use a stress rate above the contract rate. Each adjustment lowers the income or raises the payment, and each one lowers the coverage the lender sees.
Gross rent is not net operating income. A rent roll with three months left on the leases is a vacancy problem, not an income statement. Owner occupied commercial is underwritten on the business cash flow, not the rent the business pays itself. Mixed use properties split into residential and commercial income with different treatment. And a borrower's own pro forma is a starting point for the conversation, not the number that goes on the submission.
The check is an estimate. The Deal Desk underwrites the file on the lender's terms before it is submitted.