How to Calculate DSCR: Rent, PITIA, and the Inputs Lenders Use

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The formula takes ten seconds. Getting the two inputs right is where investors lose deals — because the rent a lender uses is often not the rent you collect, and PITIA includes line items most people leave out.

DSCR = Gross monthly rent ÷ PITIA Principal, Interest, Taxes, Insurance, and Association dues. Every component, at the amount the lender will escrow, not the amount you hope for.

Step one: the rent the lender will use

This is the single most misunderstood input. You do not choose it.

Your situation	Rent used in the calculation
Vacant at purchase	Appraiser's Form 1007 market rent
Signed lease above Form 1007 market rent	The lease amount, at most lenders
Signed lease below Form 1007 market rent	The lower figure — the lease
Month-to-month tenancy	Varies; many lenders use the 1007
2–4 units	Sum of all unit rents per Form 1025
Short-term rental	Platform revenue discounted 15–25%
Section 8 / housing voucher	Contract rent, including the tenant portion

Note the asymmetry in rows two and three: a lease above market usually helps you, a lease below market always hurts you. This produces a counterintuitive result — buying a property with a long-term tenant paying $400 under market can finance worse than buying the same property vacant, because vacant gets you the appraiser's market number.

Also note what is not in the numerator. Vacancy is not deducted. Management is not deducted. Maintenance is not deducted. DSCR uses gross scheduled rent, which is why a passing DSCR and a profitable property are separate questions.

Step two: PITIA, in full

Component	What to use	Common error
Principal & interest	Payment at the quoted rate and term	Using a rate you were quoted three weeks ago
Taxes	Reassessed amount after transfer	Using the seller's bill, often with an exemption you will not receive
Insurance	Written quote for landlord coverage	Using the seller's owner-occupant premium
Association dues	Monthly HOA, condo, or co-op fee	Omitting it, or missing a special assessment
Flood insurance	Required in a FEMA special flood hazard area	Assuming the zone from a neighbouring parcel

Two line items break more deals than any other. Taxes reassess on sale in many jurisdictions — if the seller held a homestead exemption or the property has not traded in twenty years, your bill can be double theirs. And insurance in Florida, Louisiana, coastal Texas and the Carolinas, and increasingly California can come back 40–90% above the seller's premium. Get both in writing before you go under contract.

Worked, line by line

A duplex at $385,000, 25% down, $288,750 at 7.125% on a 30-year fixed. Units renting at $1,650 and $1,725.

Line	Annual	Monthly
Principal & interest	$23,338	$1,945
Property tax (reassessed)	$8,900	$742
Landlord insurance	$2,280	$190
Association dues	$0	$0
PITIA	$34,518	$2,877
Gross rent	$40,500	$3,375
DSCR		1.173

A 1.173 lands in the standard tier's upper band. Reaching 1.25 would require PITIA at or below $2,700 — achievable by borrowing about $27,000 less, or by moving to interest-only. Test either on the calculator.

Sensitivity: what moves the needle

Starting from the file above, each change in isolation:

Change	New DSCR	Effect
Baseline	1.173	—
Rate up 0.50%	1.134	−0.039
Insurance up 50%	1.136	−0.037
Down payment 30% instead of 25%	1.228	+0.055
Interest-only structure	1.275	+0.102
Rent up $100 per unit	1.243	+0.070

Structure is the most powerful lever and the one investors reach for last. Moving to interest-only lifts this file more than a 50% insurance increase hurts it — which is worth knowing when a binder comes back high a week before closing.

Global DSCR, and when it appears

Most residential DSCR loans are underwritten on the subject property alone. Some lenders, particularly on 5–8 unit files or for borrowers with large exposure, also calculate a global DSCR across your entire portfolio: total rents from all properties divided by total debt service. A strong portfolio can offset a marginal subject property; a portfolio full of thin deals can sink an otherwise clean file. If you own more than a handful of financed properties, ask whether the lender applies a global test before you submit.

Have us run it

Send the address, price, and rent, and we will calculate the ratio using the figures underwriting will actually apply — including the reassessed tax and a real insurance quote.

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Educational content. Calculation conventions vary between lenders. Confirm the specific method your lender applies before relying on a figure in a transaction.