The listing says it rents for a number. Your spreadsheet says the deal works. And the loan is going to be decided by a single ratio that neither the listing nor your spreadsheet calculated correctly.
It takes ten minutes to run it yourself, and doing it before you write is the difference between a clean file and a renegotiation.
The formula
From CMG Financial's Non-QM Sharp Series guidelines (NMLS #1820, revised 09/21/2026):
DSCR = Gross Rental Income / PITIA on an amortizing loan.
DSCR = Gross Rental Income / ITIA on an interest only loan.
And the qualifying rate: DSCR loans are qualified at the original note rate. No stress rate is layered on.
One line. The difficulty is entirely in the two inputs.
The numerator: which rent counts
Not the rent you hope for. Not the pro forma in the listing.
Gross income is calculated using the lower of the executed lease agreement or the market rent from the applicable appraisal.
So you have two numbers and the smaller one governs. If the property is leased at a strong rent and the appraiser's 1007 market rent schedule comes in lower, the appraiser wins.
There is one route around it: if the executed lease reflects a higher monthly rent than the appraisal, it may be used with sufficient evidence of receipt, and the three most recent consecutive months should be provided. So a genuinely above-market lease that is actually being paid can be used, if you can prove the payments.
Two more rules on the numerator:
Vacant properties are not eligible for refinance, except where the vacancy is due to recent renovation or rehab with intent to rent soon, supported by the appraiser confirming completed work with visual evidence. There, the 1007 market rent may be used.
Short-term rental income is permitted on purchase and refinance where legally permitted and common for the area, at a maximum 70% combined loan-to-value, a minimum 1.00x DSCR and a $2,000,000 maximum loan size, with refinances requiring a full 12 month history.
The denominator: build it properly
PITIA is where investors get it wrong, almost always by underestimating.
Principal and interest. At the note rate, on the loan amount you are actually requesting. Not on the purchase price.
Taxes. Use the assessor's figure for the property, and check whether it is about to reset. Arizona assessments and any change in classification or exemption status can move this after closing. Use the number the file will use, not last year's bill.
Insurance. This is the line investors underestimate most, and on a DSCR file there is an extra requirement that surprises people:
Rent loss insurance for the subject property is required and must equal at least six months of local average monthly rents. Blanket policies covering the subject are permitted.
So your insurance quote needs to include rent loss coverage. Get a real quote, on the actual property, including that coverage, before you calculate. A placeholder number will move your ratio.
Association dues. The A in PITIA. In this market that is frequently the line that kills an otherwise good deal. Scottsdale condominium and planned community dues can be substantial, they sit fully inside the denominator, and they push directly against coverage.
A property with attractive rent and heavy dues can miss a ratio that a plainer property with lower dues clears comfortably. Get the actual dues in writing, including any special assessment currently in effect.
A worked example
A property renting at $3,200 a month.
- Principal and interest at the note rate on the requested loan: $2,050
- Property taxes, monthly: $210
- Insurance including rent loss coverage, monthly: $165
- Association dues, monthly: $240
PITIA = $2,050 + $210 + $165 + $240 = $2,665
DSCR = $3,200 / $2,665 = 1.20x
Comfortably above 1.00x, which puts this file in the best coverage column of the grid.
Now run the same property with $600 a month in association dues instead of $240:
PITIA = $3,025. DSCR = $3,200 / $3,025 = 1.06x
Still above 1.00x, but the margin is thin enough that a tax reassessment or a higher insurance quote could drop it below. That is a file to structure with room rather than at the edge.
And at $900 in dues: PITIA = $3,325, DSCR = 0.96x. Now you are in the 0.75x column, which costs you five points of leverage or more depending on score and loan size.
Nothing about the property changed except a line item most investors leave out of the spreadsheet.
What the coverage buys you
Leverage moves with coverage, score and loan size together. At a 740 score on a purchase or rate and term refinance:
- Coverage 1.00x or better: 80% to $1,000,000, 75% to $2,000,000, 70% to $2,500,000, 65% to $3,000,000
- Coverage 0.75x or better: 75% to $1,000,000, 70% to $1,500,000, 65% to $2,000,000
- No Ratio: 75% to $1,000,000, 70% to $1,500,000, 65% to $2,000,000
Drop to a 660 score and the top of the grid becomes 70% on a purchase at or below $1,000,000 with 1.00x coverage.
So a quarter turn of coverage is worth roughly five points of leverage, which on a million dollar property is fifty thousand dollars of down payment. Worth ten minutes of arithmetic.
Interest only, and what it does to the ratio
Interest only is eligible as a 10/20 or 10/30 fixed structure, with a minimum 700 FICO and a maximum 75% loan-to-value at 1.00x coverage or 70% at 0.75x. It is not permissible on No Ratio.
On interest only the calculation uses ITIA, which removes principal from the denominator and improves coverage materially.
That is a legitimate structural tool and it has a cost. The amortizing term after the interest only period is shorter, so the payment step-up when it ends is larger than on a standard loan. Know what the payment becomes in year eleven before you use the ratio improvement in year one.
Ten minute checklist
- Get the actual lease and the likely market rent. Use the lower.
- Price the loan at the note rate on the amount you will request.
- Pull the assessor's tax figure and check for a pending reset.
- Get a real insurance quote including six months of rent loss coverage.
- Get the association dues in writing, including any special assessment.
- Add the four. Divide the rent by the total.
- Find your cell on the grid using your score, the loan size and the coverage.
Do that before you write the offer and you will never be surprised by a DSCR file again.
Common questions
What is the DSCR formula? Gross Rental Income divided by PITIA on an amortizing loan, or Gross Rental Income divided by ITIA on an interest only loan. It is qualified at the original note rate.
Which rent figure is used? The lower of the executed lease agreement or the market rent from the appraisal. A higher lease can be used with evidence of receipt, supported by the three most recent consecutive months.
Do HOA dues count in the calculation? Yes. The A in PITIA is assessments, and association dues sit fully in the denominator. In this market they are frequently what decides whether a file clears the ratio.
Do I need rent loss insurance? Yes. Rent loss insurance is required on the subject property and must equal at least six months of local average monthly rents. Include it in your insurance quote before you calculate.
What DSCR do I need? 0.75x is eligible, and a No Ratio option exists with restrictions. Coverage of 1.00x or better unlocks the highest leverage on the grid.
Does interest only improve my ratio? Yes, because the calculation uses ITIA and removes principal from the denominator. It requires a 700 minimum FICO, caps leverage at 75% at 1.00x coverage or 70% at 0.75x, and is not permissible on No Ratio.
Related reading
- DSCR and investor property loans, the full index for this topic
- DSCR Loan FAQ: The Questions Investors Ask Before Their First One
- No-Ratio DSCR Loans: Financing a Property That Does Not Cover Its Payment
- DSCR on Duplexes, Triplexes and Fourplexes: How the Ratio Changes With Unit Count
Why bring this file to us
- We run the ratio before you are committed. Finding out at the appraisal is how earnest money gets lost.
- We build the denominator honestly, including association dues and the insurance a lender will actually require.
- We tell you which leverage the coverage supports, since the grid moves with coverage and loan size together.
- Broker model. Multiple investors rather than one bank's shelf, which is what a file like this needs when the first answer is no.
- You talk to the principal. Ricky Khamis is President of EPiQ Lending and a Certified Mortgage Planner, NMLS #173141, originating mortgages since 1999. Direct line: (480) 999-9842.
EPiQ Lending is NMLS #1936984, at 7975 N. Hayden Road, Suite A-101 in Scottsdale. Verify all of it before you trust any of it: Ricky's EPiQ Lending profile, the Scottsdale branch, and the license itself at NMLS Consumer Access. Hold every lender to that standard, including us.
Run it before the offer, not after the appraisal. Send me the address and the rent and I will confirm your arithmetic against the grid in an hour.
Program figures in this post come from the CMG Financial (NMLS #1820) guideline set named above, as published on the revision date given. CMG Financial is the parent company of EPiQ Lending. These figures describe one investor's program at one point in time. Other investors price and underwrite the same borrower differently, guidelines change without notice, and nothing here is an offer of any specific program or terms. Confirm current eligibility on your own file before you plan around any of it.
Equal Housing Opportunity. This is general information, not a commitment to lend or an offer to extend credit. Rates, terms, and program guidelines change and depend on credit approval, property appraisal, income and asset verification, and other qualifying factors. Not all applicants will qualify. Non-QM, asset-based and business purpose financing carry different pricing, terms and consumer protections than agency financing. Consult your tax advisor regarding the tax treatment of any income or distribution strategy.
Run the coverage ratio before you write the offer
DSCR files are decided by the rent against the payment. Send the address and the rent and I will tell you where the ratio lands before you are committed.
