Calculating your DSCR is the single most important step before approaching a non-QM lender. They want to know one thing: does your rental income safely exceed the total property debt obligations?
The Simple Formula
DSCR = Net Operating Income (NOI) ÷ Annual Debt Service (PITIA).
If your property generates $2,000 in monthly rent, and your total monthly payments (mortgage principle, interest, property taxes, insurance, and HOA) are $1,500, your DSCR is exactly 1.33. That is considered a very healthy margin!
What Ratio Do You Actually Need?
Most lenders look for a minimum DSCR of 1.0 to 1.25. A ratio of exactly 1.0 means the property perfectly breaks even. Any ratio over 1.25 generally unlocks the absolute lowest tier of interest rates.
If your ratio is severely under 1.0, you aren't automatically disqualified, but expect to encounter much higher interest rates and requirements for a larger down payment (e.g., 25% or 30%).