DSCR — Debt Service Coverage Ratio — is the single number that determines whether a rental property qualifies for an investor loan, and at what rate. Every investor should be able to calculate it in their head in 30 seconds.
The Formula
DSCR = Net Operating Income ÷ Debt Service
For single-family and small multifamily lending, lenders simplify it to:
DSCR = Gross Monthly Rent ÷ Monthly PITI
Where PITI = Principal + Interest + Taxes + Insurance (and HOA if applicable).
Worked Example
Property: rowhome in Baltimore.
- Purchase price: $275K
- Loan: $206K at 7.5% / 30-year fixed
- P&I: $1,440/mo
- Taxes: $275/mo
- Insurance: $95/mo
- Total PITI: $1,810/mo
- Market rent: $2,400/mo
DSCR = $2,400 ÷ $1,810 = 1.33
This qualifies comfortably at almost any lender and will price at the best DSCR tier.
What the Number Means
| DSCR | Lender View |
|---|---|
| 1.50+ | Best pricing, highest LTV |
| 1.25–1.49 | Strong pricing, standard LTV |
| 1.00–1.24 | Qualifies but with rate penalties |
| 0.75–0.99 | "No-ratio" or reduced-ratio products only |
| < 0.75 | Typically declined |
Improving a Weak DSCR
- Larger down payment. Lower loan = lower PITI = higher DSCR.
- Interest-only product. Same loan, lower payment for the IO period, better DSCR.
- Rate buydown. Pay points to lower the rate; each 0.25% drop is material.
- Longer amortization. 40-year amortizing products exist and lower monthly P&I.
- Raise rent. If under-rented, push rent to market before the refi.
Common DSCR Mistakes
- Using gross scheduled rent on a partially-vacant property
- Forgetting HOA fees
- Using projected rent when lender requires lease-based or market comp
- Not factoring in rate at current pricing (using last year's number)
Underwrite Yourself First
Before submitting to any lender, compute DSCR yourself using today's rates. If it is under 1.25, figure out how you'll get it there. Running the numbers yourself prevents 80% of declined submissions.
DSCR in a Portfolio
When you have multiple rentals, lenders may evaluate a portfolio DSCR (total rents ÷ total PITI). Strong performers can offset weaker ones — which is another argument for diversifying across submarkets.
Bottom Line
DSCR is the single most important number in rental lending. Calculate it before you make an offer, before you submit a loan application, and before every refi. If you know your DSCR, you can predict your financing outcome before anyone else does.
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