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Calculating DSCR

Master the DSCR formula with step-by-step examples for every property type.

The DSCR Formula​

DSCR = Gross Monthly Rent ÷ PITIA

PITIA Components:

  • Principal (loan paydown)
  • Interest (lender's fee)
  • Taxes (property taxes)
  • Insurance (hazard/homeowner's)
  • Association dues (HOA/condo fees)

Step-by-Step Calculation​

Step 1: Determine Monthly Rental Income​

  • Use current lease amount, OR
  • Use appraiser's market rent estimate (if vacant)

Step 2: Calculate PITIA​

  • Loan payment (P&I from amortization)
  • Annual property taxes ÷ 12
  • Annual insurance premium ÷ 12
  • Monthly HOA dues (if any)

Step 3: Divide​

DSCR = Monthly Rent ÷ Monthly PITIA

Example 1: Single-Family Home​

Property Details:

  • Purchase Price: $350,000
  • Down Payment: $70,000 (20%)
  • Loan Amount: $280,000
  • Interest Rate: 7.5%
  • Loan Term: 30 years

Monthly PITIA:

ComponentMonthly
Principal & Interest$1,957
Property Taxes$350
Insurance$150
HOA$0
Total PITIA$2,457

Rental Income: $2,800/month

DSCR = $2,800 ÷ $2,457 = 1.14 ✅

Example 2: Duplex (2-Unit)​

Property Details:

  • Purchase Price: $500,000
  • Down Payment: $125,000 (25%)
  • Loan Amount: $375,000
  • Interest Rate: 7.75%

Monthly PITIA: $3,382

Rental Income:

  • Unit A: $1,800/month
  • Unit B: $1,900/month
  • Total: $3,700/month

DSCR = $3,700 ÷ $3,382 = 1.09 ✅

Example 3: Fourplex (4-Unit)​

Monthly PITIA: $5,970

Rental Income:

  • Units 1-4: $1,600 + $1,600 + $1,700 + $1,700
  • Total: $6,600/month

DSCR = $6,600 ÷ $5,970 = 1.11 ✅

Example 4: Condo with HOA​

Monthly PITIA: $2,249 (includes $400 HOA)

Rental Income: $2,400/month

DSCR = $2,400 ÷ $2,249 = 1.07 ⚠️

Note: HOA fees significantly impact DSCR on condos.

Example 5: Short-Term Rental (Airbnb)​

Monthly PITIA: $3,225

Projected STR Income: $5,500/month Lender Uses (75%): $4,125/month

DSCR = $4,125 ÷ $3,225 = 1.28 ✅

DSCR Thresholds​

DSCRMeaningLoan Implications
Below 0.75Significant negative cash flowWon't qualify
0.75 - 0.99Slight negativeHigher rates, limited options
1.00Break-evenStandard pricing
1.00 - 1.25Positive cash flowGood pricing
1.25+Strong cash flowBest rates

Troubleshooting Low DSCR​

  1. Increase down payment → Lower loan = lower P&I
  2. Buy down the rate → Lower interest = lower payment
  3. Shop insurance → Save $50-100/month
  4. Appeal property taxes → Reduce T in PITIA
  5. Interest-only option → Remove principal from payment
  6. Find higher-rent property → More income = better DSCR

Quick Reference Card​

┌─────────────────────────────────────────────────────┐
│         DSCR QUICK CALCULATION                      │
├─────────────────────────────────────────────────────┤
│  DSCR = Monthly Rent ÷ Monthly PITIA                │
│                                                     │
│  PITIA = P + I + T + I + A                          │
│                                                     │
│  TARGET DSCR:                                       │
│    1.00 = Minimum (break-even)                      │
│    1.10 = Good                                      │
│    1.25+ = Excellent (best rates)                   │
└─────────────────────────────────────────────────────┘

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