How lenders calculate DSCR on a rental property

DSCR stands for debt service coverage ratio, and it asks one question: does the property produce enough rent to cover what it costs to carry? Divide the rent by the payment and you have it. A result above 1.0 means the property covers itself with room to spare; below 1.0 means it doesn’t, and the file needs something else to work.

That’s the whole concept. What makes DSCR useful to an investor is what it leaves out, your job, your tax returns, your personal debt-to-income. The property is the borrower, in effect.

The payment side is more than principal and interest. It generally includes property taxes, insurance, and HOA dues where they apply, the whole cost of carrying the property, not just the loan.

That’s where most surprises live. Taxes get reassessed after a sale and the new bill can look nothing like the seller’s. An insurance quote pulled early and casually can come in materially higher once the property is actually underwritten. HOA dues on a condo or a planned community get forgotten entirely and then land on the file late.

Send the address, the purchase price or current value, the actual or market rent, and, if you have them, the current tax bill and HOA dues. That’s enough for a first read on whether the ratio works before you spend money on anything.