Why Your DSCR Number Matters
The DSCR ratio doesn't just determine whether you qualify — it also affects how good your loan terms are. A DSCR of 1.05 will get you approved at most programs, but a DSCR of 1.25+ unlocks better rates, higher leverage, and more flexibility.
Think of your DSCR as a lever: the higher it is, the more favorable your loan.
The DSCR Formula (Quick Refresher)
DSCR = Gross Rental Income ÷ PITIA
Where PITIA = Principal + Interest + Taxes + Insurance + Association Dues
To improve your DSCR, you need to either increase the numerator (rent) or decrease the denominator (debt obligations).
Strategies to Increase Rental Income
Add a Bedroom or Unit
Converting a den, bonus room, or garage into a legal bedroom can meaningfully increase the appraised market rent. Similarly, adding an accessory dwelling unit (ADU) to the property adds a second income stream.
Furnish for Short-Term Rental
If the property is in a market with strong short-term rental demand and favorable local regulations, furnishing the unit and renting on a short-term or medium-term basis can substantially increase gross income.
Target Higher-Rent Renovations
Not all renovations move the rental needle equally. Focus on renovations that directly increase rent: updated kitchens, modern bathrooms, in-unit laundry, and curb appeal improvements.
Lease Up Before Applying
Having a signed lease at or above market rent provides the strongest evidence of rental income. If you can lease the property before applying, you lock in a concrete number rather than relying on the appraiser's opinion.
Strategies to Reduce Debt Service
Buy Down the Rate
Paying discount points to reduce your interest rate lowers your monthly payment and directly improves your DSCR. Run the numbers — on a hold asset, a rate buydown often pays for itself within 12–24 months.
Shop Insurance Aggressively
Property insurance premiums vary widely by carrier. Getting 3–5 quotes can save hundreds per month on some properties — especially in high-risk wind or flood zones.
Appeal Your Property Tax Assessment
If the property's assessed value is higher than comparable sales suggest, filing a tax appeal can lower your annual tax bill and improve your DSCR.
Put More Down
A larger down payment reduces the loan amount, which lowers the monthly payment. If you're on the border of a DSCR breakpoint (e.g., 1.20 vs. 1.25), an extra 5% down might push you into a better pricing tier.
DSCR Breakpoints and Pricing
Most lenders price DSCR loans in tiers:
| DSCR Range | Pricing Impact |
|---|---|
| 1.25+ | Best rates and terms |
| 1.10–1.24 | Standard pricing |
| 1.00–1.09 | Acceptable, slightly higher rates |
| Below 1.00 | Premium pricing, if available at all |
Even a small improvement — from 1.18 to 1.25, for example — can result in a meaningfully lower rate.
Run the Numbers First
Before you apply, model the deal using our Long Term Rental Calculator to see exactly where your DSCR falls. Then optimize from there.
Need help structuring a deal for the best terms? Talk to a Prime Advisor.