Formula documentation
How every calculator works
This page documents the formulas, assumptions, and constraints used across DSCR Test. The calculators are screening tools for education and scenario planning, not lender approvals.
Core formulas
| Metric | Formula | Notes |
|---|---|---|
| DSCR | Monthly rental income / monthly debt service | Debt service can include principal, interest, taxes, insurance, HOA, and other required fixed property debt. |
| Total monthly debt service | Mortgage payment + taxes + insurance + Monthly HOA + other required payments service | Actual lender treatment varies by program, property type, and documentation method. |
| Cash flow cushion | Monthly rental income - monthly debt service | This is not full operating cash flow unless all expenses are included. |
| Maximum payment at 1.25 DSCR | Monthly rental income / 1.25 | Used as a common benchmark, not a universal lender rule. |
| LTV | Loan amount / property value x 100 | Some lenders use the lower of appraised value or purchase price. |
| NOI | (Effective monthly rent - monthly operating expenses) x 12 | Debt service is excluded from NOI. |
| Cap rate | Yearly income after operating expenses (NOI) / purchase price x 100 | Measures before-loan property yield before financing. |
| Yearly cash return (cash-on-cash) | Annual cash flow / total cash invested x 100 | Annual cash flow equals NOI minus annual debt service in our calculator. |
Underwriting assumptions
- DSCR thresholds such as 1.20 and 1.25 are common screening levels, not guaranteed lender cutoffs.
- Taxes, insurance, HOA, reserves, vacancy, repairs, and management can materially change a deal.
- Short-term rental income may be discounted or require historical documentation.
- Credit score, reserves, property type, loan-to-value, and prepayment terms can override ratio-only conclusions.
Legal constraints
- Outputs are estimates for educational use only.
- DSCR Test is not a lender, broker, attorney, CPA, or financial adviser.
- No calculator result represents loan approval, eligibility, or final underwriting.
- Users should verify terms directly with licensed professionals and lenders.
Choose the next calculation