How to calculate DSCR The formula is straightforward:
Gross Rental Income
Debt Service Coverage Ratio (DSCR) =
Annual Debt Obligations
Where: Verified rent (lease or appraisal-supported) Annualized - not optimistic projections
Total Annual Debt Service: All annual debt obligations on the property, includes principal, interest, property taxes, insurance, and HOA dues (“PITIA”). EXAMPLE Suppose a property brings in $108,000 in rent annually, and its total annual debt
payments (mortgage, taxes, insurance, HOA) come out to $90,000. Divide the income by the expenses: DSCR = 108,000 ÷ 90,000 = 1.2
A DSCR of 1.0 means the property breaks even, as it generates just enough income to cover the loan. Values above 1.0 indicate surplus income, which helps mitigate risk in the lender's eyes. The number indicates the amount of breathing room your property has when covering fixed costs. Use that insight to adjust pricing, structure the loan, or compare investment opportunities. Why This Matters: This calculation aligns with investor economics: It evaluates the property’s ability to support itself It removes personal income documentation from the qualification picture It prioritizes cash flow performance over tax returns or 1040s That’s why DSCR loans are ideal for real estate investors - the asset, not the borrower, determines eligibility. DSCR Requirements for Different Loan Types: DSCR requirements vary by program. Some lenders require 1.25 or higher, while others allow ratios closer to 1.0 when the file is strong. Our program offers flexibility, especially when supported by solid reserves, property condition, or credit. Short-term rental income can also qualify. In many cases, we accept AirDNA reports, allowing investors to use actual performance data rather than relying only on long-term leases.
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