If the deal cash flows, you’re in business — here’s how to prove it.
DSCR loans offer real estate investors a powerful way to qualify for financing based on the property’s income, not personal income or tax returns.
👉 But there’s one number that matters most in every DSCR deal: the Debt Service Coverage Ratio.
If your DSCR is solid, your loan has a high chance of approval. If it’s weak, lenders may ask for more reserves, a higher down payment — or deny the loan entirely.
Here’s how to calculate your DSCR, what’s considered “good,” and how to improve it when it’s close.
✅ What Is DSCR?
DSCR stands for Debt Service Coverage Ratio — the ratio between a property’s monthly income and its monthly expenses.
The formula is simple:
DSCR = Gross Monthly Rental Income ÷ Monthly PITIA
Where PITIA =
Principal + Interest + Taxes + Insurance + Association Dues
🔢 Example: Calculating DSCR
Let’s say:
- Monthly rent: $2,500
- PITIA: $2,000
DSCR = $2,500 ÷ $2,000 = 1.25
📘 This means the rental income covers 125% of the mortgage-related costs — a strong DSCR in the eyes of most lenders.
💡 What’s Considered a Good DSCR?
| DSCR Score | How Lenders See It |
|---|---|
| 1.25+ | Strong — low risk |
| 1.10 – 1.24 | Acceptable — standard approval |
| 1.00 – 1.09 | Borderline — may require reserves |
| < 1.00 | Risky — may be declined or need compensating factors |
Some lenders allow DSCR as low as 0.75–0.99, but you’ll typically need:
- Larger down payment (25–30%)
- Stronger credit score
- More months of reserves
🧠 What Counts as Rental Income?
Depending on the deal, DSCR lenders use:
- Signed leases (for long-term rentals)
- 12-month rental history (via tax return or bank statements)
- Market rent from an appraisal (if vacant)
- AirDNA reports or STR projections (for short-term rentals)
💡 The gross income used in the ratio must be well-documented and acceptable to the underwriter.
🔧 How to Improve Your DSCR (If It’s Low)
- Increase rent (or use market rent if yours is below average)
- Buy down the rate to lower your monthly payment
- Put more money down to reduce the loan amount
- Lower property taxes or insurance (if possible)
- Choose properties with no HOA or lower carrying costs
✅ The goal: Increase income or reduce expenses — ideally both.
🏢 Why PRMI?
We help investors:
- Calculate and optimize DSCR ratios for approval
- Use STR projections or market rent to qualify
- Access flexible DSCR programs, including low-ratio options
- Avoid common pitfalls with underwriting, reserves, or appraisal issues
Even a few percentage points can make or break a deal — we’ll help you get it right.
👇 Want to Calculate Your DSCR or See If Your Deal Qualifies?
Send us the rent and estimated mortgage numbers — and we’ll run your DSCR instantly, no income docs needed.