What is the DSCR formula?
It's simple division. On top, the monthly rent the property earns or could earn. On the bottom, the monthly cost of owning it, which lenders call PITIA. Rent divided by PITIA is your DSCR.
A ratio of 1.0 means the rent matches the housing cost. Above 1.0, the rent covers it with room to spare. Below 1.0, it falls short.
What is PITIA?
PITIA is the full monthly cost of holding the property. Each letter is one piece:
- Principal: the part of the monthly mortgage payment that pays down the loan balance.
- Interest: the lender's charge for the loan, built into the monthly mortgage payment.
- Taxes: the property taxes, shown as a monthly share of the yearly bill.
- Insurance: the homeowners policy, also as a monthly share.
- Association dues: any HOA charges, if the property has them.
Where does the rent number come from?
If the property is leased, the lender usually uses the lease or the actual rent. If it's vacant or being bought, an appraiser provides a market rent estimate. Some programs also look at short-term rental income, depending on the lender.
What ratio do lenders want?
Many programs look for rent of 1.0 to 1.25 times the monthly housing cost. A higher ratio generally gives you more program choices. Some lenders allow a ratio under 1.0 on certain files. Every program is different, and I'll tell you where yours lands before you commit to anything.
What does a quick example look like?
Say a rental earns a monthly rent that, once you divide it by the full monthly housing cost, comes out to 1.3. That's rent of 1.3 times the housing cost. For many DSCR programs, that's a ratio worth taking to a lender. If it came out to 1.1, I'd look at programs that accept a lower ratio and talk through what that means for the terms offered.
Does my personal income matter?
This is the appeal of DSCR loans. The property is what qualifies, not your tax returns or your pay stubs. Lenders still review credit, the amount of equity or cash in the deal, and your experience as an investor, depending on the program.
Where I come in
I'm Danny Granger, NMLS #920614, sponsored by Lumin Lending, NMLS #2716106, licensed in 18 states. I compare over 100 wholesale lenders, which matters here because DSCR requirements vary a lot from one to the next. Run your own rent and housing cost through the DSCR calculator, read the DSCR program page or DSCR loans explained, then send me the property and I'll check it against the lenders. I'll tell you plainly which programs fit, what the lender will want to see, and what to expect next.
