DSCR Loans · 2 min read
How to Calculate DSCR on a Rental Property
How to calculate DSCR on a rental property, with the formula, a worked example, which rent lenders use and how to improve your ratio.
This guide is part of our DSCR & Long-Term Rental Loans hub.
Debt service coverage ratio (DSCR) tells a lender whether a rental property pays for itself. It is the main qualifying number on a DSCR loan, so it is worth running before you make an offer.
The formula
For residential rentals, most lenders use:
DSCR = monthly rent ÷ monthly PITIA
PITIA is principal, interest, property taxes, insurance and any HOA dues. Commercial lenders often use annual net operating income divided by annual debt service instead.
Worked example
- Monthly rent: $2,400
- Principal and interest: $1,450
- Property taxes: $250
- Insurance: $120
- HOA: $0
- PITIA total: $1,820
DSCR = $2,400 ÷ $1,820 = 1.32. The property produces 32% more rent than its payment, which meets most lender minimums.
What the number means
- Above 1.25: strong coverage and usually better pricing.
- 1.0 to 1.25: the rent covers the payment with a modest cushion.
- Below 1.0: the rent does not fully cover the payment. Some programs allow this with more down payment.
Which rent counts
Lenders typically use the lower of the signed lease or the appraiser’s market rent estimate. For vacant properties, market rent from the appraisal is used. Short-term rental programs may use rental history or projected income data.
How to improve your DSCR
- Put more down to lower the loan payment.
- Buy down the rate.
- Shop insurance and appeal high tax assessments.
- Choose properties where rent is strong relative to price.
- Consider an interest-only option if the lender offers one.
Ready to see if your property qualifies? Review the full DSCR loan requirements.
Related guides
Explore the full hub: DSCR & Long-Term Rental Loans. Other financing: Fix and Flip & Hard Money Loans · Commercial Real Estate Loans · Unsecured Business Loans · Trust Deed Investing.
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Terms, leverage and timelines vary by lender, property and borrower qualifications. This article is general information, not financial, legal or investment advice, and not a commitment to lend.