How to Calculate DSCR

Every investor eventually asks: "how do they decide if my deal is good enough?" With a DSCR loan, the answer is one number. Does this property make enough money to cover its own debt?

No tax returns. No W-2s. No explaining your side hustle to an underwriter who doesn't understand why your Schedule C shows a loss. The property either cash flows or it doesn't. The DSCR tells you by how much.

The Formula

A DSCR of 1.00 means the rent exactly covers the mortgage payment. Above 1.00, you're cash-flow positive. Below 1.00, you're dipping into your pocket every month.

Lenders care about this number because it tells them whether the property pays for itself, regardless of what else is going on in your financial life.

Worked Example

Let's walk through a real scenario with actual numbers.

The Property

• Purchase price: $400,000
• Down payment: 25% ($100,000)
• Loan amount: $300,000
• Interest rate: 7.5% (30-year fixed)
• Monthly rent: $2,500

The Monthly PITIA Breakdown

Component	Monthly Amount
Principal & Interest	$2,098
Property Taxes	$333
Homeowner's Insurance	$125
HOA Dues	$0
Total PITIA	$2,556

Now bump the rent to $2,800/mo (better market, maybe furnished) and you get:

What Counts as Income

This is where most people make mistakes.

Long-Term Rentals (LTR)

For a standard long-term rental, lenders use the market rent from a 1007 appraisal. This is a rent schedule completed by the appraiser as part of the property appraisal. It's not what you think you can charge. It's not what Zillow says. It's what a licensed appraiser determines based on comparable rentals in the area.

Short-Term Rentals (STR)

Short-term rentals use projected or actual income, but most lenders apply an income factor that discounts the number. They do this because STR income is less predictable than a 12-month lease.

The income factor varies by lender:

Lender	STR Income Factor	Effect on $4,000/mo Projected
Aggressive lender	100%	$4,000 counted
Middle-of-road lender	90%	$3,600 counted
Conservative lender	80%	$3,200 counted

Same property, same projected income, but your DSCR changes depending on which lender you use. This is why shopping matters.

What Counts as Debt Service

PITIA. All of it. Every piece.

• Principal: the portion of your payment reducing the loan balance
• Interest: the cost of borrowing
• Taxes: annual property taxes divided by 12
• Insurance: homeowner's insurance (and flood insurance if required)
• Association dues: HOA or condo fees, monthly

Miss any one of these in your napkin math and your DSCR calculation is wrong. HOA dues are the most commonly forgotten line item.

DSCR Thresholds: What the Numbers Mean

DSCR	What It Means	Lender View
1.25+	Strong cash flow. 25%+ cushion above debt service	Best pricing. Most options.
1.10 – 1.24	Positive cash flow with a reasonable margin	Standard pricing. Widely accepted.
1.00 – 1.09	Break-even to slim positive	Accepted with pricing adjustments.
0.75 – 0.99	Negative cash flow. You're covering the gap monthly	Some lenders allow it. Expect higher rates and larger down payments.
Below 0.75	Deep negative cash flow	Very few lenders. Hard to place.

How DSCR Affects Your Rate

DSCR isn't just a pass/fail number. It directly impacts your interest rate.

Lenders price loans using a bond model with adjustments (called LLPAs, or loan-level pricing adjustments). A higher DSCR means fewer adjustments, which means a lower rate. A lower DSCR means more adjustments stacked on top of your rate.

The difference between a 1.25 DSCR and a 1.00 DSCR can be 0.50% to 1.00% in rate. On a $300K loan, that's roughly $100–$200/mo in payment difference. Over 30 years, that adds up to real money.

Higher DSCR = better rate = lower payment = even higher DSCR. It's a virtuous cycle. The math rewards properties that cash flow well.

Common Mistakes

Forgetting HOA Dues

That $350/mo HOA on the condo you're eyeing? It's part of PITIA. A property that looks like a 1.20 DSCR without the HOA might actually be a 1.02 with it. Big difference in pricing.

Using Gross Rent Instead of Net

For STR properties, the income number that matters is what hits your account after the platform takes its cut. Airbnb's 3% host fee, your property manager's 20%. These reduce the income the lender will count. Use the net number.

Not Accounting for STR Income Factors

Your AirDNA report says $5,000/mo. Great. But if your lender uses an 80% income factor, they're underwriting at $4,000/mo. Run the DSCR on what the lender will actually count, not what you project.

Ignoring Flood Insurance

Properties in flood zones require separate flood insurance. This can add $100–$400/mo to your PITIA. If the property is anywhere near water, check the flood zone before running your numbers.

Run It Yourself

The formula is simple. The details are what get people. Get the rent right, get the PITIA right, and the ratio tells you exactly where you stand. No ambiguity, no guesswork.

Or skip the spreadsheet entirely. The DSCR calculator runs the math instantly with rate estimates from actual lender pricing. Thirty seconds. No credit pull. No one's going to put you in a drip campaign.