How to Calculate DSCR: The Formula Lenders Use to Qualify Rental Properties

Before a lender approves a DSCR loan, they run one key calculation. Knowing it ahead of time helps you screen deals and avoid surprises.

The DSCR Formula

DSCR = Property Income ÷ Property Debt Obligations

Property income is typically the monthly rent, from a signed lease or a market rent estimate.
Debt obligations usually include principal, interest, property taxes, insurance, and any HOA dues (often called PITIA).

Lenders define the details slightly differently, so confirm exactly how yours calculates it.

A Simple Example

Suppose a rental property earns $3,000 per month in rent, and the total monthly payment (principal, interest, taxes, insurance, and HOA) is $2,400.

$3,000 ÷ $2,400 = 1.25 DSCR

The property earns 1.25 times what it costs to carry the loan.

What Do the Numbers Mean?

Above 1.0: The property’s income covers its debt payments with room to spare.
Exactly 1.0: Income equals debt. It breaks even.
Below 1.0: Income does not fully cover the payment. Some programs allow this with stronger credit, more cash down, or reserves, but terms may be less favorable.

Minimum ratios vary by lender and program, so there is no single universal cutoff.

How to Improve a Weak DSCR

If a deal falls short, you can often adjust the numbers:

Increase the down payment to lower the loan amount and payment.
Raise the rent if the market supports it.
Shop for a different structure, such as a longer term, which lowers the monthly payment.
Reduce expenses, for example by comparing insurance quotes.
Choose a different property with a stronger rent-to-price ratio.

Run the Numbers Before You Offer

Calculating DSCR before you make an offer saves time and helps you compare deals. Cole Boren at DSCR Loans With Cole can review your scenario and explain which options may fit. Call 702 275 5997 or email [email protected].

About the author: Cole Boren helps real estate investors with DSCR financing through CMG Home Loans. Learn more at https://www.dscrloanswithcole.com/. NMLS# 384591 | Company NMLS #1820. Examples are for illustration only. Programs, rates, and terms are subject to change.