# Do I qualify for a DSCR loan?

Computes the debt service coverage ratio (DSCR) of a rental property loan, gross rent ÷ PITIA, the largest loan that meets a target DSCR, and the DSCR on net operating income.

- Page: https://www.acalculator.org/finance/dscr-calculator
- JSON spec: https://www.acalculator.org/finance/dscr-calculator.json
- Version: 4e70301210aa

## Default answer

Example with the default inputs (Monthly rent $3,000.00, Purchase price $400,000.00, Down payment 25%, Interest rate 7.5%, Loan term (years) 30, Interest-only payments No, Property tax $4,800.00, Insurance $1,800.00, HOA dues $0.00, Target DSCR 1.25, Vacancy 5%, Other operating costs $300.00): Renting for $3,000.00 a month against a PITIA of $2,647.64, the DSCR is 1.13.

## Inputs

| Key | Label | Description |
| --- | --- | --- |
| rent | Monthly rent | The gross monthly rent the property earns, or the market rent from the appraisal. |
| price | Purchase price | The price or value of the property. |
| down | Down payment | The part of the price you pay in cash; the loan is the rest. |
| rate | Interest rate | The fixed yearly rate of the loan. The monthly rate is this ÷ 12. |
| years | Loan term (years) | The years the loan is repaid over. |
| io | Interest-only payments | Pay only the interest each month, as some DSCR loans allow; the lender then uses that payment. |
| tax | Property tax | The property tax, per year (or per month with the switch). |
| insurance | Insurance | The property insurance premium, per year (or per month with the switch). |
| hoa | HOA dues | Homeowners or condo association dues each month. |
| target | Target DSCR | The DSCR your lender asks for; the largest loan is figured for it. |
| vacancy | Vacancy | The share of the rent lost to empty months, for the DSCR on net operating income. |
| costs | Other operating costs | Repairs, management, and other running costs each month, for the DSCR on net operating income. |

## Outputs

| Key | Label | Description |
| --- | --- | --- |
| dscr | DSCR | The gross monthly rent divided by the monthly PITIA: principal, interest, taxes, insurance, and HOA dues. |
| meets | Target | Whether the DSCR reaches the target DSCR. |
| pitia | Monthly PITIA | Principal and interest plus a month of property tax, insurance, and HOA dues. |
| payment | Principal and interest | The monthly loan payment: interest only, or a level payment over the term. |
| loan | Loan amount | The price minus the down payment. |
| cashFlow | Rent left after PITIA | The monthly rent minus the PITIA, before vacancy and other running costs. |
| maxLoan | Largest loan at the target | The loan whose PITIA makes the DSCR equal the target, at the same rate, term, taxes, insurance, and dues; 0 when those alone miss it. |
| maxPrice | Price that loan buys | The largest loan at the target divided by the loan share of the price (1 − down payment). |
| noi | Net operating income | A year of rent less vacancy, minus property tax, insurance, HOA dues, and other operating costs. |
| noiDscr | DSCR on net operating income | The yearly net operating income divided by a year of principal and interest, as commercial lenders count it. |

## Method

DSCR = rent ÷ PITIA, with PITIA = P&I + (tax + insurance) ÷ 12 + HOA and P&I = L × r ÷ (1 − (1 + r)^−n) (or L × r when interest-only); largest loan = (rent ÷ target − (tax + insurance) ÷ 12 − HOA) ÷ (P&I per $1).

## Assumptions

- The DSCR uses the gross monthly rent and the full monthly PITIA, as most DSCR (rental) loan lenders do.
- The loan has a fixed rate; interest is charged monthly at the yearly rate ÷ 12.
- The DSCR on net operating income uses the rent less vacancy and all operating costs, over a year of principal and interest.
- Lenders set their own DSCR minimums, rates, and down payments; the defaults are examples.

## Worked examples

1. rent = $3,000.00, price = $400,000.00, down = 25%, rate = 7.5%, years = 30, io = no, tax = $4,800.00, insurance = $1,800.00, hoa = $0.00, target = 1.25, vacancy = 5%, costs = $300.00 gives loan = $300,000.00, payment = $2,097.64, pitia = $2,647.64, dscr = 1.133083, meets = Below the 1.25 target, maxLoan = $264,582.61, maxPrice = $352,776.81, noi = $24,000.00, noiDscr = 0.953451. Source: Newfi Lending, DSCR loan requirements (DSCR = gross rent ÷ PITIA). https://newfi.com/dscr-loan-requirements/.
2. rent = $2,400.00, price = $300,000.00, down = 20%, rate = 6%, years = 30, io = yes, tax = $3,600.00, insurance = $1,200.00, hoa = $100.00, target = 1, vacancy = 0%, costs = $0.00 gives loan = $240,000.00, payment = $1,200.00, pitia = $1,700.00, dscr = 1.411765, meets = Meets the 1 target, maxLoan = $380,000.00, maxPrice = $475,000.00. Source: Newfi Lending, DSCR loan requirements (DSCR = gross rent ÷ PITIA). https://newfi.com/dscr-loan-requirements/.
3. rent = $1,500.00, price = $200,000.00, down = 25%, rate = 0%, years = 25, io = no, tax = $2,400.00, insurance = $1,200.00, hoa = $0.00, target = 1.25 gives payment = $500.00, pitia = $800.00, dscr = 1.875, maxLoan = $270,000.00, maxPrice = $360,000.00, noiDscr = 2.4. Source: Newfi Lending, DSCR loan requirements (DSCR = gross rent ÷ PITIA). https://newfi.com/dscr-loan-requirements/.

## FAQ

### What is a DSCR loan?

A mortgage on a rental property that the lender approves on the property’s rent rather than your personal income. The key test is the debt service coverage ratio (DSCR): how many times the rent covers the monthly payment with taxes, insurance, and dues.

### How is DSCR calculated for a DSCR loan?

DSCR = gross monthly rent ÷ PITIA, where PITIA is principal and interest plus a month of property tax, insurance, and HOA dues. $3,000 of rent against a PITIA of $2,647.64 is a DSCR of 1.13.

### What DSCR do lenders require?

Many DSCR lenders ask for at least 1.00 (the rent covers PITIA) and give better terms at 1.20 to 1.25 or more. Some allow less with a larger down payment. Enter your lender’s target; the page shows whether you meet it.

### How do I raise my DSCR?

Borrow less (a bigger down payment), get a lower rate or an interest-only payment, or find a higher rent. The page shows the largest loan that meets your target at your rate and costs: $264,582.61 in the example, so about $35,400 more down.

### How is the DSCR on net operating income different?

Commercial lenders divide the net operating income (rent less vacancy and all running costs, including taxes and insurance) by a year of principal and interest. It is usually lower than the DSCR-loan ratio, because it counts vacancy and upkeep.

### Are the rate and target on this page current?

No. The page shows no live rates or lender rules. The defaults are examples; use your lender’s quote and minimum DSCR.

## Sources

- Office of the Comptroller of the Currency, Comptroller’s Handbook, Commercial Real Estate Lending (debt service coverage: net operating income divided by debt service). https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/index-commercial-real-estate-lending.html
- Newfi Lending, DSCR loan requirements (DSCR = gross rent ÷ PITIA; typical minimums of 1.00 and up). https://newfi.com/dscr-loan-requirements/
- Amortized loan payment formula: S. A. Broverman, Mathematics of Investment and Credit, chapter 3.