The Quick Read: The lender divides a documented rent figure by the full monthly payment on the property (principal, interest, taxes, insurance, and any association dues), then checks that ratio against the program’s floor. Credit, reserves, and property eligibility get reviewed alongside it, all subject to lender guidelines. Philadelphia changes the inputs more than the method. Taxes follow the city’s assessment, and the rental license ends up in the file.
- The ratio is rent divided by PITIA, the monthly payment that includes taxes and insurance. It is not the commercial NOI formula.
- Rent used for lender review is typically the lower of the signed lease and the appraiser’s market-rent opinion.
- Philadelphia taxes track the assessed value on the city’s books, not the price you paid.
- Clearing 1.00 means rent covers the payment on paper. It does not mean the property cash flows.
What the Underwriter Is Measuring
On a one-to-four-unit rental, the underwriter asks one core question: does the rent cover the payment? The loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. Your personal tax returns are not the center of the file.
DSCR Calculator
Run the numbers in your market
Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 29, 2026
Prefilled with starting assumptions — enter your own rent or nightly figures, taxes, insurance, and HOA for a more accurate picture.
Program parameters update from Lendmire’s centralized guideline source. Taxes and insurance are editable estimates.
As of Oct 29, 2026 · General Freddie Mac market benchmark, not a Lendmire loan offer. Rent, nightly rate, occupancy, taxes, and insurance are editable estimates. Short-term rental figures are estimates only and vary significantly by season, property type, management approach, and local short-term-rental rules — confirm local regulations before relying on them. Qualifying income for short-term rentals varies by program — some use appraisal market rent, others use documented STR history or projections — and is confirmed in underwriting. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
Here is the formula:
DSCR = qualifying monthly rent ÷ monthly PITIA
Many people get this wrong. Generic finance pages define the ratio as net operating income divided by total debt service. That is the commercial and multifamily method. On a Philadelphia rowhome, twin, or small multi-unit, the program version is simpler. It uses rent against the full housing payment and skips the operating-expense line.
DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage.
Across the wholesale network Lendmire works with, 1.00 is where many select programs start. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. Stronger ratios open better pricing and leverage. The complete DSCR loans guide covers the basics if the term is still new to you.
The Payment Side: What Goes Into PITIA
PITIA stands for principal, interest, taxes, insurance, and association dues. Each piece comes from a different place.
- Principal and interest come from the loan amount and structure. The spine of the network is the 30-year fixed. Select lenders also offer 40-year terms and interest-only periods, and ARM structures exist for investors who want them. On an interest-only structure, the payment counted in the ratio may be the interest-only payment, depending on the lender.
- Taxes come from the assessed value, which is where Philadelphia gets interesting.
- Insurance comes from a quote on the property. If the property needs flood coverage, that goes into the payment too.
- Association dues count if the property has any.
Taxes first. The City of Philadelphia publishes a real estate tax rate that is split between the City and the School District. The same page says the rate has been unchanged since 2016. It also says the Office of Property Assessment sets assessed values, and those values drive the bill.
That matters for your DSCR file for two reasons.
1. The tax line in your payment follows the assessment, so a rowhome bought below or above its assessed value will not carry “1.4% of the price” in taxes. Underwriters use the figure they can document, so check the actual assessment before you run your own numbers.
2. A reassessment can lower your ratio even if rent and loan terms never change. A higher assessed value raises the denominator.
If a property carries any tax abatement, ask the lender how it treats the tax line at application and what happens when the abatement ends. A lender may count the current amount, a projected amount, or a different figure, depending on guidelines. Do not assume an owner-occupant tax benefit carries over to a rental either.
How the Rent Number Gets Set
The rent used for lender review is the number most likely to move your ratio. Here is how it works on most files.
The appraiser documents estimated market rent on a rent schedule. For a one-unit property, the form is the Form 1007 single-family comparable rent schedule. The appraiser picks comparable rentals, adjusts for meaningful differences, and reconciles to a final market-rent opinion. For a duplex, triplex, or fourplex, the appraisal typically uses the 2-4 unit form (1025), with rent shown unit by unit. Philadelphia has plenty of small multi-unit buildings, so the per-unit rent roll matters there.
Then comes the choice between lease and appraisal. When the property is leased, the rent used for lender review is typically the lower of the signed lease and the appraiser’s market rent. That convention varies by lender, but it holds on most files.
- A lease above market is typically capped at the appraised figure.
- A lease below market pulls the ratio down, because the lease is the lower number.
- A vacant or newly acquired property rests on the appraiser’s opinion alone.
Short-term rentals work differently. Multiplying a nightly rate by 30 is not an accurate way to document their income. In practice, short-term rental income is documented through other means, such as platform or bank statements. Across the network, short-term rental purchases typically reach 75% LTV, and cash-out on short-term-rental collateral tops out at 70%. Expect a 640+ score, about 12 months of hosting history, and a 1.00 coverage floor. Short-term rental rules can vary by city, county, HOA, and property type, so investors should confirm local rules before relying on projected rental income. Lendmire’s piece STR vs Mid-Term Rental Income in DSCR Underwriting goes deeper.
A Worked Example With Modeled Inputs
Run the numbers on a leased rowhome. These are modeled assumptions, not market data. Say the full payment is split like this: principal and interest are 70% of it, taxes 18%, insurance 8%, and association dues 4%. Set the payment at an index of 100 and the rent used for program review at 120. Coverage lands at 1.20x.
Now change one input at a time:
| Scenario | What changes | Coverage |
|---|---|---|
| Baseline | Nothing | 1.20x |
| Taxes rise 20% | Payment index 103.6 | About 1.16x |
| Insurance rises 25% | Payment index 102 | About 1.18x |
| Rent used for eligibility review 5% lower | Rent index 114 | 1.14x |
| Taxes +20% and rent −5% | 114 ÷ 103.6 | About 1.10x |
| Principal and interest 10% lower | Payment index 93 | About 1.29x |
The last row shows what a larger down payment does. A bigger down payment shrinks the loan, which lowers principal and interest and lifts the ratio. Look at row five, though. A rent cut and a tax increase together can eat a comfortable ratio fast. That is why a deal that barely clears 1.00 on paper deserves a skeptical second look.
Step by Step: From Application to Clear-to-Close
Here is the file flow, and who touches it at each stage.
1. Scenario. You choose purchase, rate-and-term refinance, or cash-out. That sets the loan size and structure.
2. Application and documents. You provide credit authorization, entity documents if you are buying in an LLC (subject to lender program eligibility), the lease if the property is leased, and the insurance quote.
3. Payment build. The lender calculates principal and interest on the proposed loan and adds taxes, insurance, and dues.
4. Appraisal. The appraiser returns a value, which drives LTV, and a market-rent opinion, which drives coverage.
5. Rent used for the lender’s review. The underwriter takes the lower of lease and market rent where a lease exists.
6. Ratio check. Rent divided by PITIA gets compared to the program floor and pricing tiers.
7. Overlays. Credit, reserves, title, insurance, and property eligibility all get checked.
8. Conditions. The underwriter may request items. Then the deal works to clear-to-close.
DSCR is not a shortcut around underwriting. The ratio is one input among several.
Philadelphia Items That Can Complicate a File
Three local items tend to surface.
The rental license. The City of Philadelphia says a rental license must be renewed annually, each building needs its own license, and licenses are not transferable. Because licenses are not transferable, that matters at purchase: the seller’s license does not become yours. The city’s page also ties the license to good standing on city taxes. Whether a given program asks for the license in the file is a lender-by-lender question, so raise it early with your broker rather than at the end.
Open violations. Unresolved code violations can complicate licensing, and they can complicate the appraisal. A property with a licensing problem can have a DSCR file that works on paper but stalls anyway.
Condition. Philadelphia has a lot of older housing. Older systems and shared walls show up in appraisal notes and insurance quotes, and both feed the payment side.
Not every property qualifies, either. Manufactured homes (single- and double-wide), log homes, and barndominiums are not offered through the network’s DSCR programs.
DSCR vs. conventional financing
There are two common ways to finance an investment property, and they qualify you differently — here’s how investors weigh them.
Why investors choose it
- Qualifies on the property’s rental income — no personal tax returns, W-2s, or pay stubs needed to document income.
- No personal debt-to-income ceiling to clear, so existing mortgages and obligations don’t cap your borrowing the same way.
- Can be closed in an LLC, keeping the property inside a business entity.
- Built for scaling — not held to the limit on number of financed properties that conventional financing applies.
- Underwriting centers on the deal: generally qualifies when the rent covers the payment, a 1.00x coverage ratio being a common baseline (confirmed in underwriting).
- Designed specifically for investment property, including long-term and, where the program allows, short-term rentals.
Where it’s strong
- Often the lowest ongoing financing cost for a buyer who fully qualifies on personal income — a fit for a first property or a cost-first purchase.
Trade-offs for investors
- Requires full personal income documentation and must fit within a debt-to-income limit — salary, existing debts, and other mortgages all count.
- Typically held in your personal name rather than a business entity.
- Caps how many financed properties you can carry, which can become a ceiling as a portfolio grows.
- Evaluates you as a borrower as much as the property, which usually means more paperwork.
How investors usually choose: a first or single property often optimizes for the lowest financing cost; portfolio builders often optimize for leverage, vesting in an LLC, and scaling past conventional caps. The right answer depends on your goals, the property, and current guidelines — both paths run through select lenders in Lendmire’s wholesale network, with eligibility and terms confirmed in underwriting.
The Other Tests: Credit, Reserves, and Leverage
The ratio is only half the picture. The strongest files clear both tests: enough equity and enough rental coverage. These are typical ranges across select lenders in the network, subject to lender guidelines.
| Factor | Typical range |
|---|---|
| Purchase LTV, investment property | 75%–80% |
| Rate-and-term refinance ceiling | Up to 85% on select programs |
| Cash-out, standard rental | About 75% |
| Credit score | 620 floor in parts of the network; most want about 660; 700+ for the strongest leverage |
| Reserves | Commonly about 6 months PITIA; about 9 months above $1,500,000 |
| Loan size | Up to $3,000,000 on standard programs |
Reserves flex by lender, leverage, loan size, and transaction type. Conservative rate-and-term files at modest leverage under $1,500,000 can see reserves waived. Above $2,500,000, the network generally holds to 30-year fixed structures, and Lendmire’s explanation of how super jumbo DSCR loans are underwritten covers that range. Some select high-leverage programs reach 85% on purchases with a 700+ score.
A larger down payment lowers the payment and can lift your ratio. It never erases leverage caps, credit floors, reserve rules, or property eligibility.
What If the Ratio Falls Short?
A short ratio is a signal to adjust the deal, not always a dead end. These are the levers.
| Lever | What it does |
|---|---|
| Larger down payment | Shrinks the loan and lowers principal and interest |
| Different structure | Interest-only or a longer term, through select lenders |
| Better rent evidence | Lease, comparables, and a clean file before the appraisal |
| Lower purchase price | Reduces loan size and, often, assessed-value risk |
| Sub-1.00 program | Available through select lenders, with leverage and terms adjusted |
Exact options depend on the lender, the credit profile, reserves, and a property review. Nothing here is a commitment to lend.
Also think about the decision itself. Honestly, a rowhome that only clears 1.00 is a thinner bet than a multi-unit that sits comfortably higher, even if the rowhome looks nicer. DSCR compares rent to PITIA only. Repairs, vacancy, management, utilities, and capex sit outside the calculation, so a 1.00 means break-even on paper, not positive cash flow. Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
Purchase, Refinance, and Rehab-Then-Refinance
On a purchase, the appraisal and lease drive the rent side. On a cash-out refinance of a standard rental, most programs top out around 75% LTV, and about 6 months of seasoning is the common expectation. Seasoning is the waiting period a lender wants between buying a property and refinancing it.
The rehab-then-refinance route is common with older housing. You buy, renovate, lease it, then refinance into a long-term loan. Improvements may support a higher appraised value, depending on comps and underwriter review. The lease and the market-rent opinion then set the coverage.
Key Terms Defined
DSCR (debt service coverage ratio): On a one-to-four-unit rental, qualifying monthly rent divided by the full monthly payment.
PITIA: Principal, interest, taxes, insurance, and association dues, the monthly payment the ratio is measured against.
LTV (loan-to-value): The loan amount as a percentage of the property’s appraised value or price.
Form 1007: The appraiser’s rent schedule for a one-unit investment property, documenting estimated market rent from comparable rentals.
Seasoning: The waiting period a lender wants between an event, such as a purchase, and a refinance.
Reserves: Liquid funds, usually counted in months of PITIA, that you hold after closing.
Frequently Asked Questions
Does the rental license have to be in place before a DSCR loan closes?
It depends on the lender. The city requires a license for each building, renewed annually, and it is not transferable from the seller. Whether a program makes it a condition varies by guideline. Ask your broker at the start, so the license is not discovered late in the file.
Which rent counts, the lease or the appraisal?
Typically the lower of the two when the property is leased. When it is vacant, the appraiser’s market-rent opinion alone counts. This is a common convention rather than a universal rule.
Can rising taxes change my ratio after I buy?
Yes. Philadelphia taxes follow the assessed value, so a reassessment raises the payment side even if rent holds still. On a refinance, the new assessment goes into the new file.
Does clearing 1.00 mean the property makes money?
No. The ratio counts only PITIA. Maintenance, vacancy, management, and utilities are outside it, so a rental can clear the ratio and still run thin.
What if my ratio is below 1.00?
Coverage below 1.00 is available through select lenders in the network, with leverage and terms adjusted. A larger down payment, a different structure, or stronger rent documentation may also improve the file.
Run Your Own Numbers
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. Lendmire is a mortgage broker arranging DSCR financing through select lenders in its wholesale network, across 41 markets including Washington, D.C. Call 828-256-2183 to talk through a Philadelphia rental.
About Lendmire
Lendmire, NMLS# 2371349, is a non-QM mortgage broker serving real estate investors in 41 markets, including Washington, D.C., through DSCR investor loan programs. Qualification is generally reviewed around the subject property’s rental income, not the borrower’s W-2 history — a practical fit for LLC-titled portfolios and self-employed investors. All scenarios remain subject to program review and program guidelines. Two consecutive Scotsman Guide Top Mortgage Workplace recognitions (2025, 2026).
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. City of Philadelphia, property tax and 2027 valuations notice
2. Fannie Mae / Freddie Mac Form 1007/1000
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How a DSCR Refinance Works With a New Appraisal and Lease · Is a DSCR Refinance Worth It If Your Rental Lender Is Leaving? · How to Lower Your Loan-to-Value on a Rental Before a DSCR Refinance
Guides: DSCR Loans in Philadelphia, PA · DSCR Loans in Pennsylvania
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.