Quick answer
DSCR (debt service coverage ratio) = monthly rent ÷ full monthly payment (PITIA). PITIA is principal, interest, property taxes, insurance and any HOA dues. A DSCR of 1.0 means the rent exactly covers the payment. Most DSCR lenders look for 1.0 to 1.25, and some programs go below 1.0 with more down. Example only: $3,200 rent ÷ $2,699 PITIA = a DSCR of 1.19.
DSCR calculator
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What DSCR means
DSCR stands for debt service coverage ratio. For a rental property loan, it measures whether the rent pays the mortgage. Lenders use it instead of your personal income, which is why a DSCR loan doesn't need tax returns or pay stubs.
The DSCR formula
DSCR = gross monthly rent ÷ PITIA
- Principal and Interest: the loan payment. Interest-only for interest-only loans.
- Taxes: yearly property taxes ÷ 12.
- Insurance: yearly hazard and any flood insurance ÷ 12.
- Association dues: monthly HOA, if any.
Example only: a $400,000 rental with 25% down is a $300,000 loan. At an example 7.75%, principal and interest is about $2,149. Add $400 a month in taxes and $150 in insurance for a PITIA of about $2,699. With $3,200 in rent, $3,200 ÷ $2,699 = 1.19.
What ratio lenders want
| DSCR | What it means | Typical result |
|---|---|---|
| 1.25 and up | Rent covers the payment with 25%+ to spare | Best pricing and highest loan-to-value |
| 1.00 to 1.24 | Rent covers the payment | Widely available |
| 0.75 to 0.99 | Rent covers most of the payment | Some programs, usually more down and a higher rate |
| Below 0.75 | Rent falls well short | Hard to finance as a DSCR loan |
These are typical ranges. Each lender sets its own minimums. Full details: DSCR loan requirements.
How lenders count rent
For a property with a tenant, lenders usually use the lease amount, sometimes capped at the appraiser's market rent. For a vacant or newly purchased property, they use the appraiser's market rent estimate on a rent schedule. Some programs allow short-term rental income with a history or a third-party estimate.
How to raise your DSCR
- Put more down. A smaller loan means a smaller payment.
- Look at interest-only. A lower payment raises the ratio, though you don't pay down principal.
- Shop insurance and appeal taxes where it makes sense. Both are in the ratio.
- Support a higher rent with a current lease or strong comparable rents.
- Buy down the rate with points if you'll hold the property long enough to break even.
Comparing a DSCR loan with tapping equity you already have? See HELOC vs DSCR loan.
FAQ
How do you calculate DSCR for a rental property?
Divide the gross monthly rent by the full monthly payment, PITIA: principal, interest, taxes, insurance and HOA dues. $3,200 rent ÷ $2,699 PITIA = 1.19.
What is a good DSCR for a DSCR loan?
1.25 or higher usually gets the best pricing. Most lenders approve at 1.0 and up, and some programs go below 1.0 with a larger down payment.
What does a DSCR of 1.0 mean?
The rent exactly covers the full monthly payment. Above 1.0 the property produces extra cash. Below 1.0 the rent falls short.
Does a DSCR loan use my personal income?
No. DSCR loans qualify on the property's rent, which is why they work well for self-employed investors.
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