How to calculate DSCR for a rental property, with examples

DSCR is monthly rent divided by the monthly payment, including taxes, insurance, and HOA dues. A result of 1.00 or higher means the rent covers the payment. The math is simple. The details lenders use for each number are where deals are won or lost.

The DSCR Formula

A DSCR of 1.00 means the rent exactly covers the payment. At 1.25, the rent is 25% more than the payment. Below 1.00, the rent doesn't cover it. Most DSCR loan programs start at 1.00, and some allow lower ratios with more down payment or reserves.

Note that lenders use gross rent. They don't subtract vacancy, repairs, or property management the way you would in your own cash-flow analysis. That keeps the calculation simple, but it means a property can qualify at 1.00 and still lose money once you account for those costs.

Step 1: Find the Rent the Lender Will Use

• Purchase: usually the market rent from the appraiser's rent schedule (Fannie Mae Form 1007 for a single-family home, or Form 1025 for 2–4 units).
• Leased property: often the lower of the lease rent and the appraiser's market rent. Some lenders will use a higher lease amount if you can show it's being paid.
• Short-term rental: a projection from market data such as an AirDNA report, or 12 months of actual booking income, usually with a discount applied. See the short-term rental guide.

Step 2: Build the Full Monthly Payment (PITIA)

• Principal and interest on the new loan. On an interest-only loan, many lenders use the interest-only payment.
• Property taxes divided by 12. On a purchase, lenders estimate taxes on the new purchase price, not the seller's current bill. In California this matters a lot, because the tax bill resets at purchase.
• Homeowners insurance divided by 12. Get a real quote early; it can swing the ratio.
• HOA dues, if any.
• Flood insurance, if the property is in a flood zone.

Step 3: Divide

Rent divided by PITIA. Most lenders round to two decimal places, and a 0.99 is not a 1.00, so get the inputs right.

Worked Examples

Example 1: Single-family rental that qualifies

Example 2: Condo where the HOA makes the difference

Rent is $2,600. Principal and interest are $1,800, taxes $300, insurance $60, and the HOA is $450. PITIA is $2,610, so the DSCR is 0.996, just below 1.00. Putting 5% more down, or choosing interest-only, would likely push it over.

Example 3: Duplex using both units

Two units rent for $2,100 each, so $4,200 total. PITIA is $3,300. DSCR is $4,200 ÷ $3,300 = 1.27, which often qualifies for better pricing tiers.

Five Ways to Raise a Low DSCR

1. Put more down. A smaller loan means a smaller payment.
2. Choose interest-only. A lower qualifying payment can lift the ratio noticeably, though it usually adds to the rate.
3. Shop insurance. A lower premium lowers PITIA dollar for dollar.
4. Support a higher rent. Give the appraiser strong rental comparables, or show a signed lease.
5. Buy down the rate. Paying points lowers principal and interest.

If none of those get you to 1.00, some lenders offer programs below 1.00 or no-ratio options, usually with a larger down payment. Run your own numbers in the DSCR calculator, which also shows the largest loan that hits 1.00 and 1.25.

DSCR Calculation FAQ

Ivan Grigorian

In the financial industry since 2015. Licensed loan officer in Los Angeles, California. NMLS #1493724, with UTM Financial, LLC (NMLS #2591548). More about Ivan

This article is general education, not financial, tax, or legal advice. Loan guidelines vary by lender and change often. Not a commitment to lend.