Calculate Debt Service Coverage Ratio (DSCR) to determine if your rental property qualifies for investment property loans.
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The Chen family is buying a $340,000 home in Columbus, Ohio. Combined income $115,000, 10% down payment, 30-year fixed at 7.125%.
Takeaway: Columbus/Franklin County averages are the reference baseline. Property tax rates and insurance premiums shift significantly by ZIP code and HOA status. Plug your actual numbers in above.
We default to state-average millage rates. County and municipal rates vary 40%+ within a single state. Ohio ranges from 0.8% (rural counties) to 2.4% (Cuyahoga/Cleveland area). Always cross-check your specific county assessor's published effective rate.
Property Tax by StateHomeowner association fees add $100-$800/month in condos and planned communities. Condos in urban markets often run $400-$700/month. If your property has HOA, add it manually to any payment estimate — it directly affects your debt-to-income ratio for loan qualification.
HOA Fee CalculatorClosing costs typically run 2-5% of the loan amount — around $6,000-$15,000 on a $300K home. Lender fees, title insurance, escrow, and prepaid taxes add up fast. These are due at closing in cash, not rolled into the mortgage by default.
Closing Costs CalculatorPrivate mortgage insurance (PMI) costs 0.5-1.5% of the loan annually until you reach 20% equity. On a $300K loan at 1%, that's $250/month. PMI cancels automatically at 78% LTV under federal law — but you can request removal at 80%.
National home price appreciation has averaged ~4% annually since 1968, but markets diverge dramatically. Sun Belt metros averaged 10%+ during 2020-2022; coastal markets often lag the national average during correction cycles. Local supply constraints are the main driver.
If you've lived in the home 2 of the last 5 years, you can exclude $250K (single) or $500K (married) of gain from federal capital gains tax. Many calculators show gross profit without applying this exclusion. Relevant when projecting sale proceeds.
Home Sale Capital Gains CalculatorBased on your inputs
Weak (0.85–1.0)
| Effective Gross Income | $27,600 |
|---|---|
| Operating Expenses | $8,808 |
| Net Operating Income (NOI) | $18,792 |
| Annual Debt Service | $21,600 |
| DSCR | 0.87 |
| Annual Cash Flow | $-2,808 |
| Min. Rent for 1.25 DSCR | $3,243/mo |
DSCR Benchmarks
≥ 1.25: Excellent — most lenders approve
1.0–1.25: Acceptable — some lenders approve
0.85–1.0: Weak — few lenders, higher rates
< 0.85: Below threshold — very hard to finance
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Most lenders require DSCR ≥ 1.25 for investment properties. 1.0 means income exactly covers debt service. Higher is better — 1.5+ gives lenders comfort. Some DSCR loan programs accept 1.0.
DSCR loans qualify borrowers based on the property's rental income vs. mortgage payment — not the borrower's personal income. Popular for real estate investors who can't show W-2 income.
DSCR = Net Operating Income (NOI) / Annual Debt Service. If NOI is $24,000 and annual mortgage is $20,000, DSCR = 1.20 — meaning the property generates 20% more income than needed to cover debt.
A DSCR below 1.0 means the property doesn't generate enough income to cover the loan. You'll need to make up the difference from other income. Most lenders won't finance properties below 1.0 DSCR.
DSCR loan rates are typically 1-2% higher than conventional investment property loans. Expect 7-10% rates depending on DSCR ratio, LTV, credit score, and property type. Higher DSCR ratios qualify for lower rates because they represent lower risk.
Increase rent to market rates, reduce vacancy by improving property condition, lower operating expenses, or refinance to a lower interest rate or longer amortization. Adding units or converting space to generate additional income also improves DSCR.
Most DSCR lenders require a minimum credit score of 620-680. Higher scores (700+) get better rates and terms. Some lenders accept 620 with higher down payments of 30-35%. DSCR loans focus on property income more than personal credit.
Yes, many DSCR lenders now finance Airbnb and VRBO properties. Lenders may use 12-month rental history, AirDNA projections, or 75% of projected short-term rental income. STR DSCR loans typically require higher reserves and down payments.
DSCR compares NOI to annual debt service payments. Debt yield divides NOI by total loan amount, showing the lender's return if they foreclose. Both measure risk, but debt yield is independent of loan terms like interest rate and amortization.
Lenders typically apply a 5-10% vacancy factor to gross rental income when calculating DSCR, even if the property is fully occupied. Higher vacancy assumptions reduce effective NOI and lower your DSCR. Markets with historically high vacancy may require 15-20% vacancy factors.
DSCR = Net Operating Income (NOI) / Annual Debt Service
NOI = Effective Gross Income − Operating Expenses
Most lenders require DSCR ≥ 1.25
Every formula on this page traces to a federal agency, central bank, or peer-reviewed institution. We cite the rule-makers, not secondhand blogs.
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Calculations are for educational purposes only. Consult a qualified financial advisor for personalized advice.