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Master the Debt Service Coverage Ratio formula and learn exactly what lenders look for when evaluating your investment property.
Key Takeaways
Debt Service Coverage Ratio (DSCR) measures a property's ability to cover its debt payments with rental income. The formula for residential investment properties (1-4 units) is:
DSCR = Monthly Gross Rental Income ÷ Monthly PITIA
Where:
1.0-1.25
minimum DSCR ratio required by most lenders
Source: Fannie Mae
No W-2s
required - DSCR loans qualify based on property cash flow, not personal income
Source: Clear House Lending Market Data
620-680
minimum credit score typically required for DSCR loans
Source: Clear House Lending Market Data
75-80%
maximum LTV for DSCR investment property loans
Source: Freddie Mac Investor Resources
Lenders use the lesser of:
If the property is vacant, the appraiser's market rent estimate is used.
Add up all the monthly housing expenses:
Divide your monthly gross rental income by your monthly PITIA to get your DSCR.
| Monthly Rent | $2,500 |
| Principal + Interest | $1,500 |
| Property Taxes | $300 |
| Insurance | $150 |
| HOA Fees | $0 |
| Total PITIA | $1,950 |
| DSCR | $2,500 ÷ $1,950 = 1.28x |
Result: This property qualifies with most lenders (1.25x+ is typically the sweet spot for best rates).
| Monthly Rent | $2,000 |
| Principal + Interest | $1,400 |
| Property Taxes | $350 |
| Insurance | $150 |
| HOA Fees | $100 |
| Total PITIA | $2,000 |
| DSCR | $2,000 ÷ $2,000 = 1.00x |
Result: Break-even. Some lenders accept 1.0x, but expect higher rates and down payment requirements.
| Monthly Rent | $1,800 |
| Principal + Interest | $1,600 |
| Property Taxes | $400 |
| Insurance | $150 |
| HOA Fees | $200 |
| Total PITIA | $2,350 |
| DSCR | $1,800 ÷ $2,350 = 0.77x |
Result: Negative cash flow. Most lenders won't approve, but "no-ratio" programs may be available with 35%+ down payment.
Our DSCR Calculator instantly computes your ratio and shows whether your property meets lender requirements.
Try DSCR Calculator| DSCR Range | Interpretation | Loan Availability |
|---|---|---|
| Below 0.75x | Significant negative cash flow | Very limited options |
| 0.75x - 0.99x | Negative cash flow | "No-ratio" programs only, 35%+ down |
| 1.00x | Break-even | Available but higher rates, 25-30% down |
| 1.00x - 1.24x | Positive cash flow | Widely available, standard terms |
| 1.25x+ | Strong cash flow | Best rates and terms, max leverage |
| 1.50x+ | Excellent cash flow | Premium pricing, best terms |
If your property's DSCR is too low, here are strategies to improve it:
For larger commercial properties (5+ units), DSCR is typically calculated as NOI ÷ Annual Debt Service (principal + interest only), where NOI = Effective Gross Income - Operating Expenses. This differs from residential DSCR which includes taxes and insurance in the denominator.
Our team can help you evaluate your property's DSCR and find financing that works. We have access to lenders with various DSCR requirements, including programs for properties with lower ratios.
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