The formula
DSCR = monthly rent the lender accepts ÷ (principal + interest + taxes + insurance + HOA), all monthly.
Principal and interest come from the loan amount, the term and the pricing on your own quote. Taxes and insurance are annual figures divided by twelve. HOA dues are monthly. The rent is the signed lease or the appraiser’s market rent; which one is used varies by program.
Every example on this page uses user-style inputs to show the math. None of them is a loan offer, and none implies any particular pricing.
Example 1: the homestead drop on a Plano resale
An investor buys a Plano home from an owner-occupant. Rent is $2,700. Principal and interest is $1,650, insurance $215, HOA $45.
| Tax figure used | Taxes per month | Full payment | DSCR |
|---|---|---|---|
| Seller’s bill, with homestead exemption | $480 | $2,390 | 2,700 / 2,390 = 1.13 |
| Investor estimate, no exemption | $610 | $2,520 | 2,700 / 2,520 = 1.07 |
The lender uses the second line. So should you.
Example 2: a MUD in a northern suburb
A newer three-bedroom rents for $2,450. Principal and interest is $1,480, insurance $190, HOA $55. Regular taxes are $510 a month; the MUD adds $180.
- Without the MUD: 2,450 / 2,235 = 1.10
- With the MUD: 2,450 / 2,415 = 1.01
Same rent, same loan. The MUD and PID guide explains where to find the MUD figure.
Example 3: high HOA dues on an Irving condo
A condo rents for $1,850. Principal and interest is $980, taxes $290, insurance (an interior policy) $45, and condo dues $420. Full payment: $1,735. DSCR: 1,850 / 1,735 = 1.07. If the association raises dues to $500, the payment becomes $1,815 and the DSCR is 1.02. Condo dues are part of the payment, and they can rise.
Example 4: a Fort Worth duplex
Each side of an older duplex rents for $1,250, so the property rent is $2,500. Principal and interest is $1,520, taxes $430, insurance $260, no HOA. Full payment: $2,210. DSCR: 2,500 / 2,210 = 1.13. If one side is vacant at refinance and the program uses only the leased side plus market rent for the other, the result depends on what the appraiser supports, which is why each unit’s rent support matters.
What the ratio usually means
| DSCR | Plain-English reading |
|---|---|
| Below 1.00 | The rent does not cover the payment. Fewer programs fit, often with more cash in the deal or more reserves. |
| About 1.00 to 1.19 | The rent roughly covers the payment. Some programs accept it; little cushion for a vacancy or a tax increase. |
| 1.20 and up | The rent covers the payment with room to spare. Usually more program choices. |
These bands are general orientation, not program rules. Credit, reserves, the appraisal and the property type all matter too.
Example 5: what a larger down payment does
Back to the MUD home in Example 2, with rent of $2,450 and a full payment of $2,415 (DSCR 1.01). If a larger down payment lowers principal and interest from $1,480 to $1,300, the payment drops to $2,235 and the DSCR rises to 2,450 / 2,235 = 1.10. Taxes, insurance and HOA stay the same; only the loan changes.
That is the main lever you control on a purchase. On a refinance, the lever is the loan amount: taking less cash out keeps the payment, and the ratio, healthier.
Example 6: a cash-out refinance on a seasoned rental
An investor has owned a Tarrant County rental for several years. It leases for $2,300. The current full payment is $1,700 (DSCR 1.35). A cash-out refinance would raise principal and interest so the full payment becomes $2,150, a DSCR of 2,300 / 2,150 = 1.07. Taking less cash out, for a full payment of $1,980, gives 1.16.
The trade-off is direct: every dollar of cash out adds to the payment the rent has to cover. Decide how much cushion you want before you decide how much cash to take.
Common DFW math mistakes
- Using the seller’s exemption-reduced tax bill.
- Forgetting the MUD tax or PID installment.
- Using a new home’s land-only first-year tax bill.
- Using last year’s insurance premium instead of a fresh landlord quote.
- Using asking rents instead of what similar homes actually leased for.
Run your own numbers in the DSCR calculator, then send the scenario.
Questions investors ask
What DSCR do I need?
It depends on the program. Many look for rent at or above the full payment, and some consider ratios below 1.00 with more reserves or a larger down payment. A higher ratio usually means more choices.
Does the DSCR include vacancy and repairs?
Usually not. Most DSCR calculations compare rent with principal, interest, taxes, insurance and HOA. Vacancy, repairs and management affect your real cash flow, so budget them separately.
Which rent does the lender use if my lease and the appraisal differ?
It depends on the program. Some use the lower of the two, some use the lease if it is supported, and refinances may require a lease. Ask before you apply.
This guide summarizes rules generally and is not legal or tax advice. Check the current city, appraisal district, special district and HOA rules for the parcel before you buy. Nothing here is a commitment to lend.