DSCR equals the monthly rent divided by the monthly PITIA payment (principal, interest, property taxes, insurance and HOA). For example, $2,400 in rent divided by a $2,000 payment equals a DSCR of 1.20. A ratio of 1.00 or higher means the rent covers the payment. Some lenders, including us, offer programs below 1.00.
Key takeaways
- DSCR = rent ÷ PITIA
- 1.00 means rent exactly covers the payment
- Higher ratios usually mean better pricing
- In Texas, property taxes and insurance move the ratio a lot
The formula
PITIA is the full monthly housing payment: Principal, Interest, Taxes, Insurance and Association (HOA) dues. Taxes and insurance are monthly amounts, so divide the annual bills by 12.
Worked examples
| Monthly rent | Monthly PITIA | DSCR | What it means |
|---|---|---|---|
| $2,500 | $2,000 | 1.25 | Strong cash flow; typically the best pricing tier |
| $2,000 | $2,000 | 1.00 | Rent covers the payment; fits most programs |
| $1,700 | $2,000 | 0.85 | Still possible with sub-1.00 programs, usually with more down |
Hypothetical figures for illustration only. Not a quote of loan terms.
Which rent counts?
- Purchase: the appraiser's market rent estimate (a rent schedule completed with the appraisal), or a signed lease
- Refinance: the current lease, and on our program we can use the higher of market rent or the lease
- Short-term rental: documented short-term rental income is accepted
Five ways to raise your DSCR
- Put more down. A smaller loan means a smaller payment.
- Protest your property taxes. Texas has no state income tax, so property taxes carry a big share of PITIA. A successful appraisal-district protest lowers the payment.
- Shop the insurance. Landlord policies vary widely in Central Texas, especially with hail and wind coverage.
- Price the rent to market. An under-market lease drags the ratio down on a refinance.
- Ask about rate options. We will show you how different structures change the payment and the ratio.
Want to skip the math? Use the DSCR calculator on our DSCR loans page, then send us the deal.
Common questions
What is a good DSCR for a rental property?
A ratio of 1.25 or higher is generally considered strong. 1.00 means the rent covers the payment. Many lenders want at least 1.00, though some programs go lower.
Does DSCR include HOA dues?
Yes. HOA or association dues are the A in PITIA and are included in the payment.
Is vacancy factored into DSCR?
Most DSCR lenders use gross rent with no vacancy deduction, but always ask, because it changes the ratio.
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