What is the DSCR Formula?
When investing in real estate, understanding the Debt Service Coverage Ratio (DSCR) is crucial for assessing whether a property will qualify for a loan. Lenders use the DSCR formula to evaluate the cash flow available to cover property debt, making it a vital metric for potential investors. In this blog post, we will walk you through the DSCR formula, its components, and how to use it to assess your investment properties effectively.
What is the DSCR Formula?
The DSCR formula is a straightforward calculation used primarily in residential and commercial real estate to determine the property’s ability to cover its debt obligations.
For residential properties (one to four units), the formula is:
Monthly Rent / PITIA = DSCR
PITIA stands for Principal, Interest, Taxes, Insurance, and any Association dues. If there are no association dues.
DSCR Example Calculation:
Consider if monthly rent is $1,750, and the housing payment (P.I.T.I.A) is $1,650. Divide the rent by the payment to get the DSCR ratio, which would be 1.06 in this example. Generally, lenders prefer a DSCR of 1:1 or greater.
Different lenders may have varying DSCR requirements:
Interest-Only Loans: Some lenders offer these loans where the DSCR falls below one, eliminating the principal from the calculation.Minimum DSCR: This varies by lender. Some might not require a DSCR, focusing instead on a larger down payment or a lower loan-to-value ratio.Lender Preferences: For favorable rates, many lenders require a DSCR of at least 1:1, with some accepting as low as 0.75 to 0.99.
Handy Tools for Your DSCR Calculations
Calculating DSCR accurately is now simpler with the use of specialized Excel calculators. These tools allow you to input principal, interest, taxes, insurance, and rent data to automatically compute your DSCR.
Learn More About DSCR Loans
Debt Service Coverage Ratio: No-Income Mortgage Loan
Debt Service Coverage Ratio:
No-Income Mortgage Loan
Designed for Real Estate Investors
Answer a Few Quick Questions and Get Rates and Terms Today
Qualify Based on Rental Income Only!
No Personal Income Needed to Qualify!
Interest Only Options Available!
Fund Into Corporation or LLC
No Pre-Pay Options
AirBnB's Allowed
Answer a Few Quick Questions and Get Rates and Loan Options Today!
STEP 1
Apply Online or Call Directly
Find out how much home you can buy or discover how much you can save by refinancing.
STEP 2
Review What You Can Qualify for Options
Learn your learn exactly how much you qualify for and what you would save by working with Evolve Funding.
STEP 3
Get Loan Approval in 24 Hours
Get mortgage loan approval to move forward with your property.
Email: [email protected]
This offer is not guaranteed if you do not meet our criteria, including credit worthiness, insurability or ability to providing acceptable property as collateral. Terms and conditions apply. Programs, rates, terms and conditions are subject to change and are subject to borrower(s) qualification. This is not a commitment to lend. The content in this website has not been approved, reviewed, sponsored or endorsed by any department or government agency.
By submitting your phone number you are providing express written consent for us and our affiliates, agents, and service providers to contact you at the email provided as well as the number provided regarding products or services, including via autodialed and/or prerecorded or artificial voice calls and texts and that this consent will persist indefinitely until you request a cease in contact which can be made by phone, email or text. You may opt out of text messages or email at any time by reply with the word STOP.