How the calculator works
The debt service coverage ratio compares what the property earns with what it costs to carry the loan each month. The calculator builds the denominator in four parts. First it computes the monthly principal and interest from the loan amount, rate and amortization term you enter using the standard amortization formula (or the interest-only payment if you flip the toggle). Then it converts annual property taxes and insurance into monthly amounts and adds any monthly HOA dues. Rent divided by that total is the ratio.
Worked example
Suppose a single-family rental leases for $2,400 a month. You have a quote whose principal and interest payment works out to $1,650 a month at the rate and term the lender offered. Taxes run $3,000 a year and landlord insurance $1,800 a year; there is no HOA.
| Line | Monthly |
|---|---|
| Principal & interest | $1,650 |
| Taxes ($3,000 ÷ 12) | $250 |
| Insurance ($1,800 ÷ 12) | $150 |
| HOA | $0 |
| Total housing expense | $2,050 |
$2,400 ÷ $2,050 = 1.17. Rent covers the full housing expense with a modest cushion: about $1.17 of rent for every dollar of payment. If the insurance renewal came in higher, or taxes were reassessed after the purchase, the ratio would slip — which is exactly why it pays to use conservative inputs.
Reading the result
- Below 1.00 — rent does not cover the payment. Some programs exist for this, but they are narrower.
- Around 1.00 to 1.15 — roughly break-even. Workable for many programs, little margin for surprises.
- 1.15 to 1.25 — a modest cushion; generally workable.
- 1.25 and up — comfortable coverage that tends to open more options.
These bands are a plain-English guide, not a program rule. Each wholesale lender sets its own minimum ratio and may adjust leverage or terms around it. If your ratio is short, the Max Loan by DSCR calculator shows what loan size would clear your target, and the Break-Even Rent calculator shows what rent would.
What DSCR leaves out
The ratio ignores vacancy, repairs, capital expenditures, property management and utilities you pay as the owner. It is a qualifying test, not a cash-flow forecast. Read DSCR vs. cash flow for how to model the difference.