Formula documentation

Methodology

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 + HOA + other debt 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	Annual NOI / purchase price x 100	Measures unlevered property yield before financing.
Cash-on-cash return	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.