The general concept behind DSCR is simple: divide the property's monthly rental income by its applicable monthly debt obligation. The result tells you, roughly, whether the property's income covers what it costs to finance.
The general formula
DSCR = Monthly Rental Income ÷ Applicable Monthly Debt Obligation.
Depending on the lender's methodology, that debt obligation may include principal, interest, taxes, insurance, and HOA dues (sometimes abbreviated PITIA) — or it may be calculated differently. There is no single universal formula every lender uses, so treat any calculation as an estimate until a specific lender's underwriting confirms it.
A worked example
Say a property rents for $2,800 per month, and its estimated monthly debt obligation — principal, interest, taxes, insurance, and HOA combined — comes to $2,258. Dividing $2,800 by $2,258 gives a DSCR of roughly 1.24x. A ratio above 1.0x generally means the property's rental income covers that obligation with some cushion; a ratio below 1.0x generally means it falls short, which may narrow available financing structures.
What rental income counts
Lenders commonly accept either current signed-lease income or an appraiser-supported estimate of market rent, depending on the scenario. Short-term rental income is sometimes considered too, often using data specific to that market, where a lender's guidelines allow it.
Try it on your property
Our DSCR quote flow walks through these inputs — rental income, taxes, insurance, HOA — and gives you an estimated DSCR for your specific scenario.
Ready to see how this applies to your property?