To calculate DSCR for a rental property, divide the monthly rent the lender will count by the property's full monthly payment, PITIA: principal and interest, property taxes, insurance and HOA dues. A house that rents for $3,250 with a PITIA of $2,597.64 has a DSCR of 1.25 ($3,250 ÷ $2,597.64). Above 1.00 the rent covers the payment; most DSCR lenders want at least 1.00 and price best from about 1.25.
The DSCR formula for rental property
DSCR = monthly qualifying rent ÷ monthly PITIA
You can run it annually instead (a year of rent over a year of PITIA) and get the same answer. The two inputs:
- Qualifying rent is the rent the lender agrees to count, which is often not the rent you expect to collect.
- PITIA is principal and interest, property taxes, homeowners or landlord insurance, and association dues, all monthly. Our explainer on PITIA and what lenders put in it covers the edge cases, such as flood insurance and special assessments.
The rest of this page is about getting each input the way an underwriter will.
Step 1: Find the rent the lender will count
| Situation | Rent lenders commonly count |
|---|---|
| Long-term rental with a lease | The lower of the lease and the appraiser's market rent. Some accept a lease above market, often up to 10% to 25% above, with proof the rent is being paid |
| Vacant, or a purchase | The appraiser's market rent from the rent schedule |
| 2 to 4 units | Every unit's rent added together, with comparables that match the unit types |
| Short-term rental with a year of history | 12 months of booking income, commonly at 75% to 100% of gross |
| Short-term rental with no history | A projection from comparable listings, commonly counted at about 80% |
| Mid-term or rent-by-the-room | Usually standard long-term market rent |
The market rent comes from the appraisal. For years that was the single-family rent schedule (Fannie Mae Form 1007, Freddie Mac Form 1000), and Form 1025 for 2 to 4 units. Since November 2, 2026, appraisals submitted to Fannie Mae and Freddie Mac use a redesigned report in which market rent has its own Rental Information section. DSCR lenders do not sell to the agencies and are moving to the new report at their own pace, but the number they read is the same: the appraiser's opinion of market rent, backed by rental comparables. How a rental property appraisal works explains how appraisers set it and what to do when it comes in low.
Short-term rental income has its own rules and haircuts, covered in DSCR loans for short-term rentals.
Step 2: Build the full monthly payment
Principal and interest. Use the loan amount, the note rate and the amortization term. In a spreadsheet, =PMT(0.075/12,360,-300000) returns $2,097.64, the payment on $300,000 at 7.50% over 30 years. Any mortgage calculator gives the same figure.
Property taxes. Use the bill the property will carry after you buy, not the seller's. Many places reassess at sale, so a long-held property's current bill can understate yours.
Insurance. A landlord (dwelling) policy quote at replacement cost, plus flood or wind cover where the lender requires it. A short-term rental needs a policy that covers paying guests, which usually costs more. In storm-exposed markets insurance can be the line that sinks the ratio.
HOA dues. The monthly dues, and any special assessment the lender knows about.
Interest-only loans. Many lenders compute the ratio on the interest-only payment plus taxes, insurance and dues, sometimes called ITIA. The smaller payment lifts the ratio, which is one reason investors choose interest-only.
Adjustable rates. Ask which rate the lender qualifies an ARM at. Many use the start rate, but not all.
Step 3: Divide, and read the result
Divide the rent from step 1 by the payment from step 2 and round to two decimals.
- Below 1.00: the rent does not cover the payment. Only sub-1.00 or no-ratio programs will lend, with more down and a higher rate.
- 1.00 to 1.19: meets the most common minimum. Some programs, especially for short-term rentals or cash-out, want more.
- 1.20 to 1.24: comfortable at most lenders, sometimes a better pricing tier.
- 1.25 and up: usually the best pricing tier.
Treat a program's minimum as a hard line. A file at 0.98 against a 1.00 minimum usually needs a change to the deal (more down, a lower rate, interest-only), not an exception.
A worked example
The example rental: $400,000 house, $300,000 loan
You buy a single-family house for $400,000 with 25% down and borrow $300,000 for 30 years at 7.50% (an example rate, not a quote). The appraiser's market rent is $3,250 and there is no lease yet.
Step 1, the rent: $3,250, the market rent.
Step 2, the payment:
| Line | Monthly |
|---|---|
| Principal and interest | $2,097.64 |
| Property taxes ($4,200 a year) | $350.00 |
| Insurance ($1,800 a year) | $150.00 |
| HOA dues | $0.00 |
| PITIA | $2,597.64 |
Step 3, the ratio: $3,250 ÷ $2,597.64 = 1.25.
Two variations on the same house:
- Interest-only: $300,000 × 7.50% ÷ 12 = $1,875.00 of interest, plus $500.00 of taxes and insurance, is $2,375.00. The ratio becomes $3,250 ÷ $2,375 = 1.37.
- A storm-market insurance bill: at $300 a month instead of $150, PITIA is $2,747.64 and the ratio drops to $3,250 ÷ $2,747.64 = 1.18. Same rent, same loan, a different pricing tier.
How to calculate the loan amount the rent supports
Run the formula backwards to find the largest loan a property's rent can carry at a lender's minimum DSCR.
- Largest PITIA = rent ÷ target DSCR.
- Largest principal and interest = that PITIA, less taxes, insurance and dues.
- Largest loan = the loan that payment repays. In a spreadsheet,
=PV(0.075/12,360,-2100)turns a $2,100 payment at 7.50% over 30 years into a loan of about $300,337. - Compare it with the leverage limit. The lender lends the lower of this figure and the loan-to-value cap.
On the example rental at 7.50%, with $500 of monthly taxes and insurance:
| Target DSCR | Largest PITIA | Largest P&I | Largest loan the rent supports |
|---|---|---|---|
| 1.00 | $3,250.00 | $2,750.00 | $393,298 |
| 1.20 | $2,708.33 | $2,208.33 | $315,831 |
| 1.25 | $2,600.00 | $2,100.00 | $300,337 |
The leverage cap is 75% of $400,000, which is $300,000, or $320,000 at 80%. At a 1.00 minimum, leverage limits this loan, not the rent. At a 1.25 target, the rent and a 75% loan meet at almost exactly $300,000. Loan-to-value ratio explains the leverage side of the test.
What moves the ratio
The rate changes the payment, so it changes the ratio. On the same $300,000 loan with $500 of taxes and insurance and $3,250 of rent (rates are examples):
| Rate | Principal and interest | PITIA | DSCR |
|---|---|---|---|
| 7.00% | $1,995.91 | $2,495.91 | 1.30 |
| 7.25% | $2,046.53 | $2,546.53 | 1.28 |
| 7.50% | $2,097.64 | $2,597.64 | 1.25 |
| 7.75% | $2,149.24 | $2,649.24 | 1.23 |
| 8.00% | $2,201.29 | $2,701.29 | 1.20 |
When the ratio comes up short, the usual levers are:
- A larger down payment, which shrinks principal and interest.
- A lower rate, bought with points or a longer prepayment penalty.
- An interest-only period, if the lender computes the ratio on the interest-only payment.
- A cheaper insurance quote for the same coverage, or a higher deductible.
- Better rent support: a signed lease at market with rent collected, or a reconsideration of value with stronger rental comparables.
- A different program with a lower minimum, at a price.
The other DSCR formula: net operating income over debt service
Outside one to four unit rentals, DSCR means something stricter. Commercial lenders on apartment buildings of five or more units, many bank portfolio loans and most business loans use:
DSCR = net operating income ÷ annual debt service
Net operating income (NOI) is rent minus vacancy and every operating expense, including taxes, insurance, repairs and management, but not the mortgage. Annual debt service is a year of principal and interest. Corporate lenders use a similar ratio built on a company's EBITDA or cash flow available for debt service.
The same house reads very differently on this formula. On the example rental: a year of rent is $39,000. Less 5% vacancy ($1,950), taxes ($4,200), insurance ($1,800), 5% for repairs ($1,950) and 8% for management ($3,120), the NOI is $25,980. A year of principal and interest is $25,171.68. The ratio is $25,980 ÷ $25,171.68 = 1.03, against 1.25 on the residential formula. Use the formula your lender uses; our guide to net operating income shows how to build NOI.
A DSCR of 1.25 is not cash flow
The residential formula leaves out the costs of running the property. On the example rental, rent of $3,250 less PITIA of $2,597.64 leaves $652.36. Set aside 5% for vacancy ($162.50), 5% for repairs ($162.50) and $150 for big replacements, and you keep about $177 a month if you manage it yourself. Pay a manager 8% ($260) and it runs about $83 a month short. The lender is satisfied either way; your return depends on the full picture, which cash-on-cash return measures.
How to calculate DSCR in a spreadsheet
Put the inputs in cells and let the sheet do the rest. In Excel or Google Sheets:
| Cell | Holds | Example |
|---|---|---|
| B1 | Loan amount | 300000 |
| B2 | Rate | 7.50% |
| B3 | Years | 30 |
| B4 | Monthly taxes | 350 |
| B5 | Monthly insurance | 150 |
| B6 | Monthly HOA | 0 |
| B7 | Monthly rent counted | 3250 |
| B8 | Principal and interest | =PMT(B2/12,B3*12,-B1) |
| B9 | PITIA | =B8+B4+B5+B6 |
| B10 | DSCR | =B7/B9 |
| B11 | Target DSCR | 1.25 |
| B12 | Largest loan at the target | =PV(B2/12,B3*12,-(B7/B11-B4-B5-B6)) |
B10 returns 1.25 and B12 about $300,337. If you would rather not build it, GoDoor's quote calculator runs the same math on your property's figures.
Common mistakes
- Using the rent you hope for. Lenders count what the lease and the appraisal support.
- Using the seller's tax bill when the sale will trigger a reassessment.
- Leaving out HOA dues or flood insurance. Both are part of PITIA.
- Using a homeowner's insurance premium for a rental, or a long-term rental premium for a short-term rental.
- Counting a projection at 100% when the lender counts 75% or 80% of it.
- Mixing up the formulas: gross rent over PITIA for one to four units, NOI over debt service for commercial loans.
- Calculating at a rate you have not locked. Until the lock, the market can move the ratio for you.
Frequently asked questions
What is a good DSCR for a rental property?
For financing, 1.25 or higher is the mark most lenders treat as strong, and it usually earns the best pricing. 1.00 is the most common minimum, so anything from 1.00 to 1.24 qualifies at most lenders at a somewhat higher price. As an investor, look past the ratio to cash flow: a 1.25 can still leave little once vacancy, repairs and management are paid.
Is DSCR calculated monthly or annually?
Either way gives the same result, because rent and PITIA are both multiplied by twelve. DSCR lenders on one to four unit rentals usually work monthly: monthly rent over the monthly payment. Commercial lenders usually work annually, with a year of net operating income over a year of principal and interest. Short-term rental income is often counted from a year of bookings and then divided by twelve.
Does DSCR use gross rent or net income?
For one to four unit DSCR loans, gross rent: the lease or market rent before expenses, divided by PITIA. Taxes, insurance and HOA dues are counted in the payment instead. Commercial and business lenders use net operating income, which subtracts vacancy and operating costs first, so the same property shows a lower ratio on their formula.
How do you calculate DSCR on a duplex or fourplex?
Add the rent the lender counts for every unit, then divide by the property's single PITIA. For each unit, that is usually the lower of its lease and the appraiser's market rent for that unit, and vacant units are counted at market rent. Living in one of the units yourself makes it a home loan, not a DSCR loan.
Can you get a loan with a DSCR below 1.00?
Yes, at some lenders. Sub-1.00 programs commonly go down to about 0.75, and no-ratio programs skip the test entirely. Both cost more: a higher rate, a lower maximum loan-to-value ratio (often 65% to 75%), a higher credit score floor and more reserves. They suit expensive markets where rents lag prices, or properties you expect to raise rents on.
Do lenders include property management fees in DSCR?
Usually not on one to four unit DSCR loans, where the ratio is gross rent over PITIA. Some lenders do subtract management or platform fees from short-term rental history before counting it. Commercial lenders include management in net operating income. Even when a lender leaves it out, include it in your own analysis, because it is a real cost.
Sources
- Freddie Mac: Single-Family Comparable Rent Schedule (Form 1000, Fannie Mae Form 1007)
- Freddie Mac: UAD and forms redesign FAQ, including the URAR's rental information
- BiggerPockets forum: A DSCR loan, clarified: coverage, flood insurance and repricing
- BiggerPockets forum: A DSCR loan with a low rent appraisal
- BiggerPockets forum: Underwriting a mid-term rental for a DSCR loan
General education, not financial, tax or legal advice. Figures are examples: rates, rules and programs change, and every lender sets its own. Last checked November 4, 2026.