How to Calculate DSCR
Debt Service Coverage Ratio measures how well a property's rental income covers its mortgage payment and required reserves. Lenders use it to underwrite investment property loans without verifying borrower income.
A DSCR of 1.0 means rent exactly equals PITIA. 1.25 means rent covers 125% of PITIA — strong cash flow. Below 1.0 means the property doesn't cover its own payment from rent (still loanable on "no-ratio" programs, at higher cost and lower LTV).
DSCR Pricing Tiers
Each DSCR threshold below correlates with lender pricing. The same file gets different rates depending on where the DSCR lands.
| DSCR Ratio | Tier | Typical Pricing | Max LTV |
|---|---|---|---|
| 1.25+ | Excellent | Best-tier rates (6.50–7.50%) | 80% |
| 1.10 – 1.24 | Standard | Standard rates (7.00–8.00%) | 80% |
| 1.00 – 1.09 | Tight | +0.25–0.50% rate add | 75% |
| 0.75 – 0.99 | Sub-1.0 ("Low DSCR") | +0.75–1.00% rate add | 70% |
| < 0.75 | No-Ratio Program | +1.00–1.25% rate add | 65% |
What Counts as Rent (and What Doesn't)
- Long-term lease: Use actual rent on lease, or appraiser's market rent estimate from Form 1007 if vacant.
- Short-term rental (Airbnb/VRBO): Lenders accept AirDNA "Rentalizer" mid-case projection on most programs. Some require 12-month trailing actuals if available.
- Mid-term rental (30-90 day): Treated as long-term rental — use signed lease or comparable market rent.
- Section 8 / housing voucher rent: Counted at the voucher amount.
- Family member rent: Generally not counted — must be arm's-length tenant.
- Pet rent, parking fees, laundry income: Generally not counted in DSCR — only base rent.
What Counts in PITIA
- Principal & Interest (P&I): Monthly amortizing payment on the new loan. If interest-only, IO payment is used.
- Taxes (T): Annual property taxes ÷ 12. Use latest tax bill or projected post-purchase amount.
- Insurance (I): Annual hazard insurance premium ÷ 12. Some lenders also require flood, wind, or umbrella in PITIA.
- Association dues (A): HOA or condo association monthly dues. Special assessments not included.
Not in PITIA: utilities, property management fees, vacancy reserves, repairs/maintenance, capex. Those affect your real cash flow but don't enter the DSCR formula.
Worked Example
Property: $400,000 purchase, $3,000/month rent, 25% down, 7.50% rate, 30-year fixed, $4,800/year taxes, $1,800/year insurance, no HOA.
- Loan amount: $400,000 × 0.75 = $300,000
- Monthly P&I: ~$2,097 (using standard amortization)
- Monthly Taxes: $4,800 ÷ 12 = $400
- Monthly Insurance: $1,800 ÷ 12 = $150
- Monthly HOA: $0
- PITIA: $2,097 + $400 + $150 + $0 = $2,647
- DSCR: $3,000 ÷ $2,647 = 1.13
1.13 DSCR qualifies on most lender programs at 75% LTV with standard-tier pricing. Bumping rent to $3,150 (with $4,800 taxes / $1,800 insurance unchanged) would push DSCR to 1.19, near best-tier.
Common DSCR Mistakes
- Using net rent instead of gross. DSCR uses gross monthly rent — don't deduct property management or vacancy first.
- Forgetting HOA. Condos and townhomes have HOA — leaving it out inflates the DSCR by 10–30% in HOA-heavy markets.
- Using old tax amount on a property you'll re-assess. Many states reassess after a sale. Use the projected post-purchase tax amount, not the prior owner's tax.
- Using interest-only payment but underwriting against fully-amortizing. Some lenders qualify on the fully-amortizing payment even on IO loans. Check program rules.
- Ignoring insurance hikes in coastal/wildfire markets. FL, CA wildfire zones, and TX windstorm areas have seen insurance premiums double 2022→2026. Use a current quote, not a historical average.
Frequently Asked Questions
DSCR = Gross Monthly Rent ÷ PITIA (Principal + Interest + Taxes + Insurance + HOA). 1.0 means rent exactly covers payment. 1.25+ is strongest tier.
Most lenders require 1.00 DSCR minimum at 75% LTV. 1.10–1.20 unlocks better pricing. 1.25+ gets best-tier rates. Sub-1.0 'no-ratio' programs exist at higher cost.
Yes. PITIA includes Principal, Interest, Taxes, Insurance, and Association dues. Skipping any inflates DSCR.
Yes — math matches wholesale lender underwriting. Final qualification may also check reserves and operating expense ratio, but the DSCR number itself matches.
1.0 means break-even on PITIA. 1.25 means 25% margin. Same loan amount, but 1.25 unlocks better pricing (~0.25–0.50% lower rate) and higher LTV.
Related Resources
- DSCR Loan Rates by Tier
- Best DSCR Lenders of 2026
- Current DSCR Rates (Weekly)
- DSCR Calculation Guide
- 2026 DSCR Loan Requirements
- DSCR LTV Limits
- All DSCR Calculators
Calculator math uses standard amortization formulas for Principal & Interest. Final lender qualification may include additional factors (reserves, operating expense ratio, property condition). For an official quote, complete our eligibility form. DSCR Capital Partners is a brand of UTM Financial, LLC (NMLS #2591548). Equal Housing Lender.