DSCR Basics

Most investors think if the property cash flows, the loan gets approved.

That’s not how lenders see it.

They’re not underwriting your spreadsheet. They’re underwriting risk.

The Disconnect

You might look at a deal and see:

• Rent: $4,500
  • Expenses: $3,200
  • Cash flow: +$1,300

Looks solid.

But the lender is focused on one number:

DSCR.

What Lenders Actually Calculate

DSCR = Rent ÷ PITIA

That includes:

• Principal
  • Interest
  • Taxes
  • Insurance
  • HOA (if applicable)

And here’s where most investors get it wrong:

• Lenders may NOT use your actual rent
  • They may NOT use your interest rate
  • They may stress test the deal

3 Common Reasons Deals Get Denied

1. The DSCR Is Too Low

• 1.25+ = strong
  • 1.00–1.24 = marginal
  • Below 1.00 = problem

2. Rent Doesn’t Support the Loan

Market rent might come in lower than expected.

That alone can kill the deal.

3. The Deal Fails Under Stress

Even if it works today…

It may not work at a higher rate.

And lenders know that.

Final Thought

A deal can look good on paper and still get denied.

Because lenders are not asking:

“Does this cash flow?”

They’re asking:

“Does this meet DSCR requirements under real conditions?”