What is a good DSCR?
A DSCR of 1.25 or higher works well for rental loans. A 1.00 through 1.25 ratio meets the minimums published by several lenders.
What is a good DSCR ratio for a rental loan?
With a 1.25 ratio, rental income covers PITIA in full: principal and interest, plus property tax, insurance and HOA dues. The remaining quarter provides room to handle a month of missed rent or a repair bill without the loan falling short. Many lenders offer their best pricing to borrowers at that ratio.
Loans remain possible at ratios from 1.00 to 1.25. Lima One Capital lists a 1.00 minimum, while Kiavi requires at least 1.10 for prequalification. If the ratio falls below 1.00, the payment exceeds the rent. Of the lenders we follow, New Silver has a 0.75 floor, but Easy Street Capital sets no minimum.
The minimum DSCR and the largest loan
When the minimum is higher, a smaller loan is supported by the same rental property. This sample uses $1,800 each month for rent. The tax is $250, the insurance is $150 and the 30-year rate is 7.5%.
| Lender minimum | Most PITIA the rent allows | Largest loan |
|---|---|---|
| 1.00 | $1,800 | $200,225 |
| 1.10 | $1,636 | $176,822 |
| 1.25 | $1,440 | $148,738 |
This owner gets about $51,500 less funding from a 1.25 lender than from a 1.00 lender. A bigger down payment must cover that gap.
Methods for raising a DSCR
Put more money down. The smaller loan reduces the principal and interest. Select a 40-year term, or choose an interest-only period when the lender provides one. Both options reduce the payment and give you more time to repay. Compare landlord insurance because policies from different carriers can vary widely. Raise lease rent to the market rate if it is currently below market. Show the appraiser a lease that is up to date.
Our DSCR loan calculator uses your numbers to show the rent required for 1.25. The DSCR formula page explains how each change affects the result.