DSCR Calculator

Debt service coverage ratio is one division problem: gross monthly rent divided by the property's total monthly payment.

DSCR = Gross monthly rent ÷ PITIA

PITIA is the part people get wrong. It stands for principal, interest, taxes, insurance and association dues. All five belong in the denominator. Running the numbers on principal and interest alone will hand you a ratio that looks considerably better than the one an underwriter will calculate.

Notice what is not in the formula. DSCR does not subtract vacancy, property management, maintenance, repairs or capital reserves. Those matter enormously to whether a rental is a good investment, but they sit outside this particular ratio. DSCR asks a narrower question: does the rent cover the payment?

Most DSCR programs look for 1.0 or better. At exactly 1.00 the property is break-even on paper — the rent covers the payment and nothing more. At 1.20 the property generates 20% more income than it needs to cover its payment.

Below 1.00 the property does not cover itself on paper, but it is not automatically out of reach. Ratios down to 0.75 are generally accepted, usually with a larger down payment or a rate adjustment to offset the shortfall. Below 0.75 you are typically looking at putting more down, finding a lower rate, or a property that rents for more.

A useful habit: if your ratio lands close to a threshold, run it again with a slightly higher tax figure. Property taxes are frequently reassessed after a sale, and a ratio that clears 1.0 on the seller's old tax bill can slip underneath it on yours.

A single-family rental brings in $2,400 a month. The financing is a $240,000 interest-only loan at 8%, which is $1,600 a month. Property taxes run $3,600 a year, or $300 a month, and insurance is $1,200 a year, or $100 a month. There are no HOA dues.

That puts PITIA at $1,600 + $300 + $100 = $2,000. Divide the rent by the payment — $2,400 ÷ $2,000 — and the DSCR is 1.20. The property produces 20% more than it needs, comfortably inside what most programs look for. Those are the numbers shown as placeholders in the calculator above, so you can reproduce the result before putting your own in.

Using net rent instead of gross. DSCR uses the full rent figure. Subtracting expenses first understates the ratio and can talk you out of a property that would have qualified.

Leaving HOA dues out. On a condo or a planned development, dues can be a few hundred dollars a month. They belong in PITIA, and forgetting them is a common reason a self-calculated ratio comes in higher than the underwritten one.

Using principal and interest only. A payment of $1,600 with $400 of taxes and insurance is a $2,000 obligation. On $2,400 of rent that is the difference between a 1.50 ratio and a 1.20 ratio.

Assuming the lease rent is the number. Both the signed lease and the appraiser's market rent schedule are considered, and where they differ underwriting generally works from the more conservative of the two. If your tenant is on a below-market lease, calculate with that figure rather than the market one.