How to calculate DSCR on a rental property.

The formula

DSCR stands for debt service coverage ratio. For a rental property loan, it is the monthly rent divided by the full monthly payment:

DSCR = monthly rent ÷ (principal + interest + taxes + insurance + HOA dues)

Lenders call that full payment PITIA. A ratio of 1.0 means the rent exactly covers it. Above 1.0, the property pays for itself with room to spare. Below 1.0, you are covering the gap out of pocket every month, and a DSCR lender will not place the loan.

What counts as rent

Lenders work from the in-place lease or the market rent the appraiser supports. On a vacant property, it is the appraiser's market rent estimate. A lease that is well above what the neighborhood supports usually gets cut back to market, so bring the lease and proof the rent is being paid.

Short-term rentals are the exception. Some lenders will qualify an Airbnb or VRBO property on its short-term income history instead of a long-term lease. See short-term rental loans for how that works.

What counts in the payment

Everything the lender will escrow or that you owe every month on the property: principal and interest on the new loan, property taxes, hazard insurance (and flood insurance if the property needs it), and any HOA dues. Divide annual taxes and insurance by twelve.

The most common mistake investors make is running DSCR on principal and interest alone. Taxes and insurance often move the ratio more than the interest rate does, so get a real insurance quote and the actual tax bill before you count on a number.

Where the bar is

Lenders want a ratio above 1.0. A strong borrower can sometimes close at exactly 1.0, but anything below that is not placeable. Credit score and experience then move the pricing, so two properties with the same ratio can price differently depending on who is borrowing.

DSCR does not use your personal income at all. No W-2s, pay stubs, or tax returns. That is the whole point of the loan: the property qualifies, not your paycheck.

When the ratio comes in short

There are three levers, and they all work on one side of the fraction or the other:

More rent evidence. A signed lease, a rent comparison, or a better appraisal rent schedule can raise the top number.

A smaller loan. Borrowing less lowers principal and interest, which shrinks the bottom number.

More down. The same thing from the other direction: more equity in, a smaller payment out.

If none of those get you above 1.0, the deal is telling you something. We would rather tell you that before you spend money on an appraisal.