DSCR Loan Basics: How Rental Cash Flow Qualifies a Loan

The formula

DSCR = gross monthly rent ÷ monthly PITIA (principal, interest, taxes, insurance, association dues).

Example (illustrative numbers only)

Market rent $2,100. Principal and interest $1,350. Taxes $250. Insurance $120. No HOA. PITIA = $1,720. DSCR = 2,100 ÷ 1,720 ≈ 1.22.

If the lender’s program requires a minimum of 1.0, this scenario passes. If it requires 1.25, the loan amount would need to drop or the rent would need to be higher.

What else lenders review

• Credit score, which often affects leverage and pricing
• Reserves, usually measured in months of payments
• Property type, condition, and whether it is leased
• Loan-to-value for purchases or refinances
• Seasoning rules for cash-out refinances

When DSCR loans are used

• Buying a rental that already leases or will lease at market rent
• Refinancing out of a short-term rehab loan after the property is stabilized (often called the refinance step of a buy, rehab, rent, refinance strategy)
• Pulling cash out of a rental to fund the next project
• Financing several rentals together where portfolio programs exist

Common pitfalls

Underestimating taxes and insurance is the most common reason a DSCR estimate comes in lower than expected. Use real quotes, not guesses.

See the DSCR rental loan page for program considerations.