Investor guide
Understanding DSCR for Rental Property
DSCR is a coverage ratio. In many residential investor loan programs, a common screening form compares qualifying monthly rent with a monthly housing obligation such as principal, interest, taxes, insurance and association dues. If those two numbers are equal, the ratio is 1.00. A result above 1.00 means the rent exceeds the obligation under that formula; below 1.00 means it does not. The important limitation is that lenders do not all calculate qualifying rent or the denominator the same way. The appraisal, lease, property type, loan-to-value ratio, credit profile and lender program can all affect eligibility. Use a calculator to screen deals, then request the lender's written DSCR methodology before relying on the number.
Use the number as a screen, not a verdict
Good underwriting is a process of replacing assumptions with verified facts. Save your first-pass estimate, then update it as leases, tax records, insurance quotes, lender terms, appraisals and inspection findings arrive.