What is a Debt Service Coverage Ratio and How is it Calculated?

If you're applying for a DSCR loan, understanding how lenders calculate your Debt Service Coverage Ratio is essential. It's simpler than it sounds — and knowing it can help you structure better deals.

The Basic Formula

DSCR = Gross Monthly Rent ÷ Monthly Mortgage Payment (PITIA)

PITIA stands for Principal, Interest, Taxes, Insurance, and Association dues. Lenders use this full payment — not just principal and interest — when calculating your DSCR.

Example

Property rents for $2,500/month. Monthly PITIA payment is $2,000. DSCR = 2,500 ÷ 2,000 = 1.25. This is a strong DSCR that most lenders will approve.

What DSCR Do Lenders Require?

Most lenders require a minimum DSCR of 1.0 to 1.25. A DSCR below 1.0 means the property doesn't cover its own payment. Some lenders offer "DSCR below 1.0" or "no ratio" loans for strong borrowers with significant equity or reserves.

How to Improve Your DSCR

Increase the rent, put more money down to lower the monthly payment, negotiate a lower purchase price, or find a lender with more flexible DSCR requirements.

How Jordan Lev Mortgage Can Help

We work with investors across all DSCR scenarios — strong ratios, borderline ratios, and even sub-1.0 situations. Submit your deal at jlwmtg.com or call 717-586-5144