Master the math behind DSCR loan qualification
DSCR (Debt Service Coverage Ratio) is a simple division:
The result tells lenders whether the property generates enough income to cover its debt obligations.
Lenders typically use one of these methods to determine rental income:
Before making an offer, research comparable rents on Zillow, Rentometer, or local listings. If market rents don't support your target DSCR, the deal may not work.
PITIA stands for the five components of your total housing payment:
| Principal | The portion of your payment that reduces the loan balance |
| Interest | The cost of borrowing money |
| Taxes | Annual property taxes ÷ 12 |
| Insurance | Hazard/homeowner's insurance ÷ 12 |
| Association Dues | HOA fees (if applicable) |
| Purchase Price | $300,000 |
| Loan Amount | $240,000 (80% LTV) |
| Interest Rate | 7.5% |
| Monthly Rent | $2,200 |
PITIA Calculation:
DSCR = $2,200 ÷ $2,053 = 1.07
✓ Qualifies for standard DSCR programs
| Purchase Price | $400,000 |
| Loan Amount | $320,000 (80% LTV) |
| Interest Rate | 7.75% |
| Monthly Rent | $1,500 × 2 units = $3,000 |
PITIA Calculation:
DSCR = $3,000 ÷ $2,821 = 1.06
✓ Qualifies for standard DSCR programs
| Purchase Price | $500,000 |
| Loan Amount | $375,000 (75% LTV) |
| Interest Rate | 7.5% |
| Monthly Rent | $2,800 |
PITIA Calculation:
DSCR = $2,800 ÷ $3,722 = 0.75
⚠️ Below 1.0 - Needs "No-Ratio" program or won't qualify
High HOA fees kill DSCR ratios. That $500/month HOA effectively adds $500 to your debt obligation. Always factor in HOA fees when analyzing deals.
Higher DSCR ratios unlock better loan terms:
| DSCR Range | Rate Impact | Programs Available |
|---|---|---|
| 1.50+ | Best rates | All programs, best terms |
| 1.25-1.49 | Excellent rates | All standard programs |
| 1.10-1.24 | Good rates | Standard programs |
| 1.00-1.09 | Standard rates | Most programs |
| 0.75-0.99 | +0.5-1.0% premium | "No-Ratio" programs |
| Below 0.75 | Significant premium | Limited options |
Use our calculator to see your DSCR ratio instantly:
Open DSCR CalculatorNow that you understand the basics, dive into our 201 Level courses to learn how DSCR calculations differ by property type, STR vs LTR, and strategies to improve your ratio.