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How DSCR Is Calculated (Formula + Real Examples – 2026 Guide)

The Debt Service Coverage Ratio (DSCR) is the foundation of every DSCR loan approval.
Lenders use this ratio to determine whether a rental property’s income can support its mortgage payment.
Even small differences in DSCR can affect pricing, approval strength, loan-to-value, and speed of closing.

This guide breaks down the DSCR formula, lender interpretations, and real-world examples you can use to structure stronger deals in 2026.

The DSCR Formula

The formula used by all DSCR lenders is:

DSCR = Rental Income ÷ PITIA

PITIA includes:

• Principal
• Interest
• Taxes
• Insurance
• Association dues (HOA), if applicable

If the rental income meets or exceeds the PITIA payment, the property is considered capable of supporting itself — the core idea behind DSCR financing.

Example 1: Long-Term Rental (1007 Market Rent)

Market Rent (Appraisal 1007): $2,800
Projected PITIA: $2,350

DSCR = 2,800 ÷ 2,350 = 1.19

A 1.19 DSCR is acceptable for most 2026 DSCR programs and usually qualifies at standard pricing.

Example 2: Strong Cash Flow Property

Market Rent: $3,600
PITIA: $2,100

DSCR = 3,600 ÷ 2,100 = 1.71

This produces excellent cash flow. DSCR above 1.50 typically earns better pricing, lower fees, and smoother underwriting.

Example 3: Low DSCR Scenario (But Still Qualifying)

Market Rent: $2,000
PITIA: $2,500

DSCR = 2,000 ÷ 2,500 = 0.80

Many 2026 DSCR lenders allow ratios between 0.80 and 0.99,
especially with strong credit, reserves, or a slightly higher down payment.

This is why DSCR loans have become extremely popular for investors with high tax write-offs or inconsistent income — the property qualifies, not the borrower.

What Income Do Lenders Use?

For long-term rentals:

• 1007 market rent schedule (appraisal)
• Existing lease, if stronger

For short-term rentals (Airbnb/VRBO):

• 12 months of actual booking income
• Revenue projections from AirDNA or similar tools
• Appraiser’s market rent analysis

How Lenders Interpret DSCR

• 1.20+ DSCR: Best-tier pricing and easiest approvals
• 1.00–1.19 DSCR: Acceptable and widely approved
• 0.80–0.99 DSCR: Still workable with compensating factors
• No DSCR minimum: Some 2026 programs allow DSCR below 0.80 with 30–35% down

Unlike conventional lending, DSCR focuses solely on property-based strength, not your personal tax returns.

How to Improve DSCR Quickly

• Buy down the interest rate to reduce PITIA.
• Choose interest-only payments for a lower monthly cost.
• Use long-term rental underwriting if it produces higher income than STR projections.
• Increase down payment to lower the mortgage amount.
• Negotiate lower HOA fees or taxes when possible.

Small improvements can push a marginal deal into approval range — or improve pricing dramatically.

Key Takeaway

Understanding how DSCR is calculated gives you a major advantage when analyzing deals, estimating rent, structuring offers, and securing better loan terms.

If you want to scale your rental portfolio in 2026, mastering DSCR is essential.

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