DSCR loans have become one of the most important financing tools for real estate investors. Instead of analyzing your personal income, lenders focus on the rental property itself. That’s why understanding how to evaluate DSCR is non-negotiable if you want to scale your portfolio.
In this guide, we’ll break down exactly how to analyze a rental for DSCR — from calculating rent to estimating PITIA and determining whether the property meets lender requirements.
What Is DSCR?
DSCR stands for Debt Service Coverage Ratio.
It measures whether a rental property generates enough income to cover its mortgage payment.
DSCR = Monthly Rent ÷ Monthly PITIA
PITIA includes principal, interest, taxes, insurance, and HOA or condo fees.
A DSCR above 1.0 means the property pays for itself. Below 1.0 means the cash flow is negative — and most lenders won’t approve it.
Step 1: Determine True Market Rent
Don’t rely on the listing’s projected rent.
Instead:
• Pull rent comps from Zillow, Rentometer, or property managers.
• Use leased comparables, not asking rents.
• Adjust for condition, amenities, and location.
Accurate rent is the backbone of DSCR analysis.
Step 2: Estimate PITIA with a Stress Rate
DSCR lenders usually calculate payments at a higher test rate than your actual rate.
This protects them in case rates rise.
A typical stress range: 7.5% to 9% interest.
Your PITIA should include:
• Mortgage principal + interest
• Property taxes
• Homeowners insurance
• HOA or maintenance fees
• Flood insurance (if applicable)
This gives you the real monthly payment the lender will use.
Step 3: Run the DSCR Calculation
Now divide your market rent by the PITIA number.
Example:
Rent: $2,000
PITIA: $1,650
DSCR = 2,000 ÷ 1,650 = 1.21
This qualifies with most lenders.
If PITIA were $2,200 instead, DSCR would drop to 0.91 — not acceptable.
Step 4: Know the Lender Requirements
Most DSCR lenders want:
• 1.0–1.2 DSCR minimum
• Higher DSCR for cash-out or short-term rentals
• Strong reserves if DSCR is borderline
Some lenders will allow 0.75–0.95 DSCR with rate premiums or seller credits, but that varies.
Step 5: Adjust Your Offer If Needed
If the DSCR is too low, you have options:
• Negotiate a lower purchase price
• Ask for seller credits
• Change loan structure (interest-only, lower LTV)
• Increase projected rent through improvements
A low DSCR is a negotiation signal — not a deal breaker.
The Power of DSCR Analysis
Mastering DSCR turns you into a disciplined investor. Instead of buying based on emotion or hype, you’re buying based on math. You know exactly what a property can support, what lenders will approve, and what cash flow to expect.
DSCR isn’t just a loan product.
It’s a decision-making tool.
If you’d like help strengthening your next loan file, I’m here for you.
Reach out anytime:
WhatsApp: +1 448-230-7488
Phone: +1 201-680-0991
Email: annie@insightflending.com