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Debt service coverage ratio
The debt service coverage ratio shows whether a rental’s income covers its loan payment. Here is how to calculate it.
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Qualify on the rent, not your income. Send the deal and a loan officer follows up with your rate and terms.
Estimate only. Loan amount is up to 85% of the purchase price on purchases, or up to 80% of the appraised value on cash-out refinances. Minimum loan $150,000. Rate and final terms depend on the property, the rent and your credit. Business-purpose loans on investment property in Texas.
The formula
DSCR = monthly rent ÷ monthly payment, where the payment is principal and interest plus property taxes, insurance and HOA dues.
- Above 1.00: the rent more than covers the payment
- Exactly 1.00: the rent covers the payment
- Below 1.00: the rent falls short
Example
Rent of $2,400 and a total payment of $2,030 gives a DSCR of 1.18. The rent covers the payment with $370 a month to spare. Try your own numbers in the DSCR calculator.
Why Texas numbers are different
Texas has no state income tax but high property taxes, and insurance has risen in many parts of the state. Both go into the payment, so use real tax and insurance figures for the property, not national averages.
Questions investors ask
What is a good DSCR?
Above 1.00 means the rent covers the payment. A higher ratio usually means better loan terms.
Does DSCR include taxes and insurance?
Yes. The payment includes principal, interest, property taxes, insurance and HOA dues.