How to Calculate DSCR for a Rental Property: Step-by-Step Guide With Examples

Learning how to calculate DSCR is essential when you’re shopping for an investment property loan. You’ve probably come across the term DSCR — Debt Service Coverage Ratio. It’s the single most important number in a DSCR loan application, and understanding how to calculate it puts you in control of your investment decisions.

This guide shows you how to calculate DSCR step by step, walks you through the formula, shows you real examples with actual numbers, and explains what lenders are looking for.

What is DSCR? The Debt Service Coverage Ratio (DSCR) measures whether a rental property’s income covers its mortgage payment. It is calculated by dividing the property’s gross monthly rent by its total monthly debt obligation (PITIA: Principal, Interest, Taxes, Insurance, and Association dues). A DSCR of 1.0 means break-even; above 1.0 means positive cash flow.

DSCR = Gross Monthly Rent ÷ Total PITIA Payment

The DSCR Formula

DSCR = Gross Monthly Rental Income ÷ Total Monthly Mortgage Payment (PITIA)

PITIA includes all components of your monthly housing payment:

P — Principal
I — Interest
T — Property Taxes
I — Insurance (homeowner’s + flood if applicable)
A — Association dues (HOA/condo fees)

Step-by-Step: Calculate Your DSCR

Step 1: Determine Gross Monthly Rent

For a long-term rental, use the market rent from a comparable rent analysis or the appraiser’s 1007 rent schedule. If you already have a lease in place, the actual lease amount works too.

For a short-term rental (Airbnb/VRBO), lenders typically use projected income from AirDNA or actual booking history from the past 12 months.

Step 2: Calculate Your Total PITIA Payment

Add up all five components of your monthly mortgage obligation. Your loan officer can provide a detailed estimate based on the purchase price, down payment, and current rates.

Step 3: Divide Rent by PITIA

That’s your DSCR.

Real-World DSCR Calculation Examples

Example 1: Single-Family Rental in Gwinnett County, GA

Purchase price: $320,000
Down payment: 25% ($80,000)
Loan amount: $240,000
Interest rate: 7.5%
Monthly principal & interest: $1,678
Property taxes: $250/mo
Insurance: $130/mo
HOA: $0
Total PITIA: $2,058/mo
Market rent: $2,400/mo

DSCR = $2,400 ÷ $2,058 = 1.17 ✓

This property qualifies comfortably. A DSCR of 1.17 means the rent exceeds the mortgage payment by 17%. Once you know how to calculate DSCR, spotting a good deal becomes much easier.

Example 2: Condo in Atlanta (Midtown)

Purchase price: $280,000
Down payment: 25% ($70,000)
Loan amount: $210,000
Interest rate: 7.75%
Monthly principal & interest: $1,502
Property taxes: $220/mo
Insurance: $100/mo
HOA: $350/mo
Total PITIA: $2,172/mo
Market rent: $2,100/mo

DSCR = $2,100 ÷ $2,172 = 0.97

This property falls just below 1.0. Some DSCR programs accept a 0.97 ratio, though you may face a rate adjustment. A larger down payment would lower the PITIA and push the DSCR above 1.0.

Example 3: Short-Term Rental Cabin in Blue Ridge, GA

Purchase price: $425,000
Down payment: 25% ($106,250)
Loan amount: $318,750
Interest rate: 7.75%
Monthly principal & interest: $2,279
Property taxes: $200/mo
Insurance: $180/mo
HOA: $0
Total PITIA: $2,659/mo
Projected STR income (AirDNA): $4,200/mo

DSCR = $4,200 ÷ $2,659 = 1.58 ✓

Knowing how to calculate DSCR for short-term rentals is especially important. Short-term rentals in high-demand areas often produce excellent DSCR ratios. This cabin qualifies easily with a 1.58 ratio.

What DSCR Do You Need to Qualify?

DSCR Range	Rating	Loan Impact
1.25+	Excellent	Best rates and terms available
1.10 – 1.24	Strong	Standard pricing with most lenders
1.00 – 1.09	Acceptable	Property breaks even or slightly positive
0.75 – 0.99	Below breakeven	Higher down payment and/or rate adjustments
Below 0.75	Difficult	Most DSCR lenders will decline

1.25+ — Excellent. Best rates and terms available.
1.10–1.24 — Strong. Standard pricing with most lenders.
1.00–1.09 — Acceptable. The property breaks even or slightly positive.
0.75–0.99 — Below breakeven. Some lenders allow this with higher down payments and/or rate adjustments.
Below 0.75 — Difficult to finance with a DSCR loan.

5 Ways to Improve a Low DSCR

Increase your down payment — A larger down payment lowers your loan amount and monthly PITIA, directly boosting the ratio.
Buy down the rate — Paying discount points reduces your interest rate and monthly payment.
Challenge the rent estimate — If you believe the appraiser’s rent schedule underestimates market rent, provide comparable lease data to support a higher number.
Reduce HOA or insurance costs — Shop insurance carriers. If HOA fees are high, consider properties without an HOA.
Consider short-term rental income — If the property is in a vacation market, STR income projections may be significantly higher than long-term rent.

How to Calculate DSCR vs. DTI: What’s the Difference?

Feature	DSCR	DTI
What it measures	Property income vs. mortgage	Personal income vs. all debts
Income documentation	None required	Tax returns, W-2s, pay stubs
Formula	Rent ÷ PITIA	Monthly debts ÷ Gross income
Ideal for	Investors, self-employed	W-2 employees, salaried buyers
Typical threshold	1.0 – 1.25 minimum	43% maximum
Loan type	Investment property only	Primary residence & investment

DTI (Debt-to-Income Ratio) is what conventional lenders use — it compares your total monthly debt payments to your personal gross income. You need tax returns, W-2s, and pay stubs to prove income. Understanding how to calculate DSCR gives you a major advantage.

DSCR completely ignores your personal income. It only looks at whether the investment property’s rent covers its own mortgage. This is why DSCR loans are so popular with self-employed investors, business owners, and anyone whose tax returns show high deductions.

For a deeper comparison, see our guide on how DSCR loans compare to conventional investment property mortgages.

Frequently Asked Questions

Does the DSCR calculation use gross rent or net rent?

DSCR loans use gross rent — the total rent collected before expenses like property management, maintenance, or vacancy. The lender is only comparing rent to the mortgage payment, not calculating your net operating income.

What if my property is vacant and has no rental income yet?

For purchase transactions, the appraiser will provide a 1007 rent schedule that estimates market rent based on comparable properties. You don’t need an existing tenant to qualify.

Can I use rental income from multiple units to calculate DSCR?

Yes. For a duplex, triplex, or fourplex, the total combined rent from all units is used in the DSCR calculation against the single mortgage payment.

How often do lenders recalculate DSCR after closing?

They don’t. DSCR is calculated once at origination for qualification purposes. After closing, your loan terms are locked in regardless of future rent changes.

Get Your DSCR Pre-Qualification

Want to know if a specific property meets DSCR requirements? Our team can run the numbers for you in minutes.

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