How to Calculate DSCR for a Phoenix Rental Property (with Examples)
The DSCR (Debt Service Coverage Ratio) is the single most important number in an investor loan. It's the simple formula that determines if your property qualifies. Let's break it down.
The Formula
The formula looks complex, but it's simple. It's just your property's income divided by its expenses.
DSCR = Gross Rental Income / PITI
- Gross Rental Income: This is the total monthly rent you receive. For a new purchase, we'll use the appraiser's projected rent from the "Comparable Rent Schedule."
- PITI: This is your total monthly mortgage payment: Principal, Interest, Taxes, and Insurance.
If the result is 1.0 or higher, the property "cash flows" and qualifies for our main DSCR loan program.
Example 1: The Phoenix Single-Family Rental
- Projected Gross Rent: $2,800 / month
- Proposed Mortgage (P&I): $2,000 / month
- Property Taxes: $250 / month
- Homeowners Insurance: $150 / month
1. Calculate PITI: $2,000 (P&I) + $250 (Taxes) + $150 (Insurance) = $2,400
2. Calculate DSCR: $2,800 (Rent) / $2,400 (PITI) = 1.17 DSCR
Result: Approved! Since 1.17 is greater than 1.0, this property qualifies.
Example 2: The Borderline Case
- Projected Gross Rent: $2,100 / month
- Proposed Mortgage (P&I): $1,700 / month
- Property Taxes: $200 / month
- Homeowners Insurance: $120 / month
1. Calculate PITI: $1,700 + $200 + $120 = $2,020
2. Calculate DSCR: $2,100 / $2,020 = 1.04 DSCR
Result: Approved! Even though it's close, 1.04 is greater than 1.0, so the loan works.
Have a property in mind? Send me the address and I'll run a DSCR analysis for you. Or, learn more in our Ultimate DSCR Guide.
Jonathan Moses
Senior Loan Officer | NMLS #2064741
This guide was prepared by Jonathan Moses (NMLS #2064741), the senior loan officer and founder of Roadrunner AZ Lending. With years of experience in the Phoenix and Scottsdale markets, Jonathan is dedicated to providing expert, transparent advice. Learn more about Jonathan.