The DSCR formula
DSCR = gross monthly rent ÷ monthly PITIA
Read the result as "how many dollars of rent for every dollar of payment." Some illustrations of how the number reads:
- 1.25: the rent covers the payment with 25% to spare
- 1.00: the rent exactly covers the payment
- Below 1.00: the rent covers only part of the payment, and the rest comes from you
Residential DSCR lenders generally work from gross rent rather than net operating income, so you don't subtract vacancy, repairs or management before dividing. That differs from how commercial lenders calculate DSCR, and it's one reason the same property can show two different ratios depending on who's asking. Short-term rentals, covered below, are the main exception.
What goes into PITIA
The bottom of the fraction is the property's full monthly housing payment, not just the loan payment. Leaving a line out is the most common reason a back-of-envelope ratio comes in higher than the lender's.
| Line | What to use |
|---|---|
| Principal and interest | The loan payment itself. It depends on the loan amount, the term, the structure (fully amortizing or interest-only) and the pricing on your file. |
| Taxes | Annual property tax divided by 12, at the bill you will pay as an investor. Homestead exemptions and assessment caps generally don't carry over to a rental, and in Texas any MUD or PID assessment belongs here too. |
| Insurance | The annual hazard premium divided by 12, plus flood insurance where it's required. In coastal Florida this can be the biggest line after the loan payment. |
| Association dues (HOA) | Monthly HOA or condo association dues, and any regular special assessment. Leave it at zero only if there is genuinely no association. |
Work everything in monthly figures. Annual taxes and premiums are divided by 12 before they go in.
How lenders figure the rent
The top of the fraction is the qualifying rent, and it has to be documented. Where it comes from depends on the property:
- Tenanted long-term rental: the signed lease. Some lenders also want to see the rent arriving in your bank statements
- Vacant unit or a purchase without a tenant: the appraiser's market-rent schedule, Form 1007, which estimates rent from comparable rentals nearby
- Lease and market rent both available: lenders differ on which figure they use, and some use the lower of the two
- 2-4 units: add the rent for every unit together and divide by the one payment for the whole property
Short-term rentals have no lease, so the income is documented differently. Lenders generally prefer 12 months of Airbnb, VRBO or property manager revenue statements, averaged over the year so a strong summer doesn't stand in for a slow winter. Where the property has no history, some programs accept comparable market data such as AirDNA. Either way, the lender may reduce gross booking revenue before running the ratio, because platform fees, cleaning and other costs come out first. So the figure on your dashboard is not necessarily the figure that qualifies you. Our short-term rental loans page covers the evidence lenders accept.
Worked examples
All three are hypothetical examples with made-up rent and payment figures. The monthly payment is given as a dollar amount so the math stays about the ratio, not about any particular loan.
Hypothetical example 1: a single-family rental vs. a condo with HOA dues
Hypothetical example. Made-up rent and payment figures, chosen to show the math. They don't reflect any lender, loan or file.
| Item | Single-family rental | Condo with HOA |
|---|---|---|
| Gross monthly rent | $2,400 | $2,100 |
| Principal and interest | $1,500 | $1,250 |
| Taxes (monthly) | $300 | $250 |
| Insurance (monthly) | $150 | $100 |
| HOA dues | $0 | $350 |
| Total PITIA | $1,950 | $1,950 |
| DSCR (rent ÷ PITIA) | 1.23 | 1.08 |
Both properties carry the same $1,950 payment, but the condo's lower rent puts it at 1.08. Leave the $350 HOA out and the condo would appear to be at 1.31 ($2,100 ÷ $1,600), which is the kind of gap that surprises investors at underwriting.
For illustration only. Not a commitment to lend, a rate lock or an offer of credit. Terms vary by lender, by property and by file.
Hypothetical example 2: a duplex where the rent falls short
Hypothetical example. Made-up rent and payment figures, chosen to show the math. They don't reflect any lender, loan or file.
| Unit A rent | $1,300 |
|---|---|
| Unit B rent | $1,250 |
| Gross monthly rent (both units) | $2,550 |
| Total PITIA | $2,800 |
| DSCR (rent ÷ PITIA) | 0.91 |
The rent covers about 91% of the payment. That doesn't end the deal: select programs carry no minimum DSCR up to 75% LTV, usually at a higher price than a file above 1.00.
For illustration only. Not a commitment to lend, a rate lock or an offer of credit. Terms vary by lender, by property and by file.
Hypothetical example 3: what a bigger down payment does
Hypothetical example. Made-up figures based on the single-family rental above, showing only how a smaller loan changes the ratio.
| Item | Original | More down |
|---|---|---|
| Gross monthly rent | $2,400 | $2,400 |
| Principal and interest | $1,500 | $1,300 |
| Taxes, insurance and HOA | $450 | $450 |
| Total PITIA | $1,950 | $1,750 |
| DSCR (rent ÷ PITIA) | 1.23 | 1.37 |
Nothing about the property changed. A smaller loan lowered the principal-and-interest line, and the ratio moved from 1.23 to 1.37.
For illustration only. Not a commitment to lend, a rate lock or an offer of credit. Terms vary by lender, by property and by file.
How to raise your ratio
There are two ways to move a fraction: raise the top or lower the bottom. Most of the levers are on the payment side, and the first few usually cost the least:
- Put more down. A smaller loan means a smaller principal-and-interest line, which lifts the ratio directly and often improves pricing too
- Pay points. Buying down the price of the loan lowers the interest portion of the payment
- Ask about interest-only. On many programs an interest-only structure lowers the qualifying payment
- Shop the insurance. A second or third quote can move the ratio on its own, especially on Florida property
- Check the tax figure. Use the investor tax bill for the parcel, and in Texas a successful appraisal protest lifts the ratio for years, not just one
- Re-examine the rent. A below-market lease or an outdated market-rent schedule understates the top of the fraction
- Mind the HOA. Between two otherwise similar properties, the one with lower dues will carry a higher ratio
If none of them get you where you need to be, a no-ratio DSCR loan at lower leverage usually will. And on a DSCR cash-out refinance, remember the ratio runs on the new, larger payment, so pulling more cash lowers it.
Run your own numbers
The DSCR calculator does this math for a specific property: enter the rent, price, taxes and insurance and it shows the ratio and the maximum loan the rent supports. Use the investor tax bill and a real insurance quote, not the seller's figures.
The ratio is one of several things a lender looks at. For the rest (credit, down payment, reserves, property type, LLC vesting and documents), read DSCR loan requirements. For how the program works overall, see DSCR loans, and if you're refinancing a rental, compare options on investment property refinance.
