What is a good DSCR ratio?

1.25 or higher is considered strong and generally reaches the best pricing. 1.00 to 1.24 qualifies on most programs. Below 1.00 means the rent does not fully cover the payment.

Does DSCR include taxes and insurance?

Yes. The payment used in the calculation is PITIA, which includes principal, interest, taxes, insurance and any association dues. Using principal and interest alone overstates the ratio.

Can I get a loan with a DSCR below 1.0?

Often yes, at reduced leverage and a higher rate. Some programs go down to roughly 0.75. Below that you will usually need a larger down payment.

Calculators

DSCR Calculator

Q: How do you calculate DSCR?

Divide the gross monthly rent by the total monthly payment including principal, interest, taxes, insurance and HOA dues. A property renting at $2,400 with a $2,000 total payment has a DSCR of 1.20.

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DSCR calculator

Gross monthly rent

Monthly principal and interest

Monthly property taxes

Monthly insurance

Monthly HOA dues

Vacancy allowance percent

Debt service coverage ratio

1.20

Total monthly payment (PITIA)

$1,870

Monthly cash flow

$530

Strong. This ratio normally reaches the best pricing tier.

DSCR is gross rent divided by the full monthly payment including principal, interest, taxes, insurance and HOA dues. Most lenders want 1.00 or higher, and the strongest pricing generally begins around 1.25.

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How to calculate DSCR

The debt service coverage ratio is gross monthly rent divided by the total monthly payment. The payment must include everything, not just principal and interest. Lenders abbreviate the full figure as PITIA, which stands for principal, interest, taxes, insurance and association dues.

DSCR = Gross Monthly Rent divided by PITIA

A property that rents for $2,400 with a total payment of $2,000 has a DSCR of 1.20. The rent covers the payment with twenty percent of headroom. Investors who calculate the ratio using only principal and interest get a flattering number that the lender will not agree with.

What DSCR you need to qualify

DSCR	Interpretation	Typical treatment
1.25 and above	Comfortable margin over the payment	Best pricing tier
1.00 to 1.24	Rent covers the payment	Standard qualification
0.75 to 0.99	Rent falls short of the payment	Reduced leverage, higher rate
Below 0.75	Material shortfall	Generally needs more down payment

The mistakes that inflate your DSCR

Using principal and interest only and omitting taxes, insurance and HOA dues
Using asking rent rather than the appraiser supported market rent
Using short term rental projections when the program qualifies on long term market rent
Ignoring that a larger cash out amount raises the payment and lowers the ratio

Improving a ratio that does not clear

There are only three levers. Increase the rent, reduce the loan amount by putting more down, or reduce the payment by taking an interest only structure where the program allows it. Interest only is the most common fix because it lowers the payment without requiring additional capital at closing.

If the ratio still does not work, the property may simply be priced above what its rent supports. That is useful information to have before the appraisal rather than after. Full terms are on the DSCR rental loan page.

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