01

The formula

DSCR = the property's monthly rent ÷ the property's monthly housing cost.

Housing cost means the full payment: principal, interest, property taxes, homeowner's insurance and any HOA dues — often shortened to PITIA. A ratio of 1.00 means the rent exactly covers the cost. A ratio of 1.25 means the property brings in $1.25 of rent for every $1.00 it costs to carry.

02

Which rent number counts

This is where most DSCR surprises come from. The lender does not simply take the rent you quote:

  • On a purchase, the appraiser's market rent estimate — the Form 1007 rent schedule — or the lease, whichever the program allows.
  • On a refinance, typically the lower of the current lease and the appraiser's market rent.
  • A lease above market rent may only count with proof that tenants have actually been paying it.
  • Short-term rentals use documented booking history or a short-term rental analysis, usually with an expense factor.
03

What the ratio decides

The DSCR feeds directly into how much you can borrow and how the loan is priced. A stronger ratio generally opens up higher loan-to-value limits and better pricing. Some programs will consider ratios below 1.00 — where the rent does not fully cover the cost — but with tighter limits, and not every property or borrower qualifies.

04

Ways to improve it

Because the ratio is rent over cost, there are only two levers: raise the qualifying rent or lower the cost.

  • Put a lease in place at market rent before refinancing.
  • Shop insurance — it is part of the cost, and it varies widely.
  • Borrow a little less, or bring more to a purchase, to reduce the payment.
  • Ask about interest-only options where available, which lower the payment used in the ratio.

Every file is different. Guidelines, pricing and eligibility vary by lender and are subject to credit approval and property eligibility — we’ll walk you through exactly what applies to yours.