DSCR stands for Debt Service Coverage Ratio, and it's the single number that decides whether a non-QM investment property loan qualifies. A conventional mortgage weighs your W-2s and tax returns. A DSCR loan is underwritten on the property's ability to pay for itself. The rent is the property's paycheck, the monthly payment is its bills, and the lender wants to know whether the paycheck covers them.
The formula: rent ÷ PITIA
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DSCR = Gross Monthly Rent ÷ Total Monthly PITIA. PITIA is the whole monthly housing payment: principal, interest, taxes, insurance, and association dues. Work one example by hand, with illustrative numbers only. The rent is $2,500. Principal and interest on the loan come to $1,420. Add $330 of property taxes, $110 of insurance, and $60 of HOA dues, and PITIA totals $1,920. Divide rent by payment: $2,500 ÷ $1,920 = 1.30x. The table collects the same lines.
| Line item | Monthly figure |
|---|---|
| Gross rent | $2,500 |
| Principal & interest | $1,420 |
| Property taxes | $330 |
| Insurance | $110 |
| HOA dues | $60 |
| Total PITIA | $1,920 |
| DSCR ($2,500 ÷ $1,920) | 1.30x |
That property earns 30% more than it costs to carry. A DSCR of exactly 1.0x means the rent equals the payment and nothing is left over. Below 1.0x, the rent falls short and the owner covers the gap every month.
What goes into PITIA
- P: Principal, the part of the payment that pays down the loan balance.
- I: Interest, charged at the note rate on the loan.
- T: Property taxes, taken from the actual annual tax bill ÷ 12. Buy in a county with a high mill rate (the local tax rate applied per dollar of assessed value) and this line moves the DSCR more than most borrowers expect.
- I: Hazard insurance, plus flood insurance where it's required. Coastal properties in FEMA Special Flood Hazard Areas can run $300–600/month here, enough on its own to push an otherwise-qualifying deal below 1.0.
- A: HOA dues, if there are any, counted at full face value.
Taxes and insurance sit in the denominator of the ratio, so anything that raises the payment pulls the DSCR down dollar for dollar. Underestimate the tax bill or the flood premium and the damage isn't only cash out of pocket. It can decide whether the loan qualifies at all.
What counts as gross rent
For a standard long-term rental, lenders use the lower of two figures: the actual signed lease, or the Form 1007 market rent, which is the appraiser's opinion of what the property should rent for. Since the lower figure governs, a below-market lease caps a generous appraisal. It runs the other way too. With no lease at all, as on a vacant property or a new acquisition, the 1007 rent stands on its own, which is why a DSCR file can close without a signed lease.
Short-term rentals (Airbnb, VRBO) get a more conservative treatment. A common structure takes the lowest of several figures: the 1007 long-term rent, a haircut-adjusted market projection, or documented STR revenue history. Which of those a provider accepts, and how deep the haircut runs, is that provider's rule. The STR underwriting tool walks through the full logic.
DSCR tiers and what they mean for your deal
Clearing 1.0x is only the entry test. Pricing follows how much cushion the property carries above its own bills, because more cushion means less risk of a missed payment, and the ratio sorts files into tiers.
| DSCR tier | What it means |
|---|---|
| ≥ 1.25x | Comfortable cushion. Providers commonly treat this band as their strongest tier for pricing, reserves, and program fit. |
| 1.00–1.24x | Positive but thinner cushion. Commonly the standard qualifying range, priced above a provider's best tier. |
| 0.75–0.99x (sub-1.0) | Rent does not fully cover the payment. Program choice narrows, and providers that offer sub-1.0 paths set their own reserve and compensating-factor requirements. |
| < 0.75x | Deep shortfall. Conventional DSCR paths thin out here; ask each provider what, if anything, fits. |
Why DSCR is not cash flow
DSCR uses gross rent, not net. It leaves out vacancy, property management, repairs, and capital expenditures, so a 1.15x DSCR property isn't necessarily cash-flow-positive once those costs land. Run the net analysis separately in the Deal Analyzer. DSCR gets a file through underwriting. What you actually earn depends on the full operating picture.
DSCR answers the lender's question, whether the rent covers the payment. The investor's question is a different one: does the property actually cash flow after expenses?
Most of the trouble with DSCR comes from treating it as a score handed down rather than arithmetic you can run yourself. Rent divided by the five PITIA lines, using the lower rent figure when the lease and the appraisal disagree, and a ratio that falls every time the payment rises. Run it before you make an offer, and remember that passing the test is not the same as making money.
Nothing on this page is a program rule or a quote. Before acting on any of it, confirm the details against the responsible provider's current, dated eligibility and pricing materials.