The Basic Formula
A simplified residential DSCR calculation divides qualifying monthly rental income by the qualifying monthly property debt expense.
Qualifying Monthly Rental Income
divided by
Qualifying Monthly Property Debt Expense
equals
DSCR
Worked example
Rent$3,200
Qualifying property payment$2,500
Result$3,200 ÷ $2,500 = 1.28 DSCR
Actual lender calculations can differ, so this is an educational estimate, not a loan approval.
Understanding the Number
DSCR 1.25
The property's qualifying income is approximately 125% of the qualifying debt expense.
DSCR 1.00
Income and debt expense are approximately equal.
DSCR .90
Qualifying income covers approximately 90% of qualifying debt expense.
Whether any of those qualify depends on lender and product rules. There is no universal required DSCR.
What Changes DSCR?
Higher rent
Improves the ratio.
Lower purchase price / loan amount
Can lower debt service.
Larger down payment
Can reduce the loan and the payment.
Lower rate
Can reduce debt service.
Lower HOA
Can improve property economics and potentially the lender's applicable calculation.
Higher taxes or insurance
Can reduce DSCR.
This Is Why Two Similar Homes Can Finance Differently
Property A vs. Property B
Property A
Rent: $2,800
HOA: $75
Property B
Rent: $2,850
HOA: $450
The extra $50 of rent on Property B does not compensate for the much larger HOA expense. The prettier property may actually produce weaker financing economics.
Estimate It Yourself
Use the free DSCR calculator to enter monthly rent, principal and interest, property tax, insurance, HOA and other lender-counted expenses. It shows your estimated qualifying property expense and estimated DSCR, plus a what-if mode that tests rent and expense changes, including a 10% lower-rent stress test. Educational only.
Open the DSCR Calculator