The Quick Read: Usually yes, and the fix sits on the property side of the file, not the borrower side. Where you live is not part of the coverage formula, but the property’s location sets the insurance market, the premium, and the coverage terms the lender must count.
- Insurance sits in the monthly obligation that rent must cover, so a higher premium lowers the ratio even when rent stays flat.
- The order of operations is: re-quote identical coverage, shrink the loan or raise the down payment, then restructure or renegotiate.
- Being out of state is not a separate underwriting category; local cost is the real variable.
- Clearing the ratio does not mean the property cash flows.
- Every outcome is subject to lender guidelines, credit review, and property review.
A shortfall means the rent divided by the full monthly obligation, principal, interest, taxes, insurance, and association dues (PITIA), comes in under the ratio a program wants. Insurance is one piece of that denominator. When it jumps, the number falls. The good news is that insurance is also one of the few pieces an investor can shop, document, and sometimes restructure around.
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Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 15, 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 15, 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.
Does Living Out of State Hurt the DSCR?
No. The borrower’s home address is not an input to the coverage calculation, so living out of state does not by itself change how insurance is treated. What changes is the property. A rental in a catastrophe-exposed market carries a different premium than one in a calm market, and that premium flows straight into the ratio.
Insurance is regulated by the state where the property sits, not the state where you live. That has a practical consequence for remote owners: use an agent who is licensed and active in the property’s state, because that agent knows which carriers are writing policies there and what they want to see.
The Federal Reserve gives a sense of the scale. A Federal Reserve FEDS Note found that multifamily property insurance rose from $39 per unit per month in 2019 to $68 in 2024 in real terms, an increase of roughly 74%. The same note found rents tend to rise alongside insurance costs, which suggests landlords partly offset the hit. That is multifamily data, not single-family data, but the direction is useful context.
The National Apartment Association adds that insurance has taken a much larger share of multifamily revenue in 2024 than it did in 2000. The practical lesson for a buyer in another state: price the insurance before choosing the market. A cheap-looking purchase price in a high-exposure area can fail a coverage test that a safer market passes.
How Much Can Insurance Move the Ratio?
Less than the headline percentage suggests. The number that matters is insurance’s share of total PITIA, not how big the premium jump looks. A 30% premium increase does not cut coverage by 30%.
The sensitivity formula is simple: the new ratio equals the old ratio divided by one plus (insurance share of PITIA times the premium increase). Here is a modeled example, using assumptions rather than market data:
- Start with a 1.25 file where insurance is 10% of PITIA.
- A 30% premium jump lands the ratio near 1.21.
- Doubling the premium takes it to about 1.14.
- At a 20% insurance share, doubling the premium lands near 1.04.
Same premium shock, very different damage. A property where taxes and principal are modest relative to insurance feels the hit more. That is why a coastal or wind-exposed rental can behave so differently from an inland one.
Two more points on the mechanics. For one-to-four-unit loans, insurance sits in the denominator. Larger multifamily and commercial loans often use net operating income divided by debt service instead, where insurance is an operating expense on top of the ratio. Articles that call insurance a numerator item are describing that second convention.
And rent will not rescue you after the fact. The rent used for review is set at underwriting, so a planned future rent increase cannot offset a premium hike on the file in front of the lender.
Diagnose First: Premium, Rent, Loan Size, or All Three?
Before pulling any lever, find which input broke the ratio. A short diagnostic helps.
| Cause | How to spot it | First lever |
|---|---|---|
| Premium too high | Quote far above neighboring comps | Re-quote identical coverage |
| Rent too low | Appraisal rent under asking rent | Document rent evidence |
| Loan too large | Ratio fine at lower leverage | More down or smaller loan |
| Stacked costs | Taxes and insurance both rose | Combine levers |
Stacked costs are common. In a modeled example, insurance adding 3% of PITIA, a tax reassessment adding 4%, and income slipping 5% takes a 1.25 file to roughly 1.11. No single item looks alarming. Together they matter.
The Fix Ladder for a Remote Buyer
Start with the most affordable, most reversible fix and climb only as needed. Condition repairs, a larger down payment, and price renegotiation cost more or depend on someone else agreeing, so they come later. Whether the early rungs are enough depends on how large the gap is and how much of PITIA insurance represents.
| Lever | Cost to you | Trade-off |
|---|---|---|
| Re-quote identical coverage | Low | Needs a local agent |
| Higher deductible within lender limits | Low | Larger out-of-pocket risk |
| Documented rent evidence | Low | Only helps if rent is truly higher |
| Price negotiation | Low | Seller must agree |
| Condition fixes (roof, wiring, plumbing) | Medium to high | Upfront capital |
| More down or smaller loan | High | Ties up cash |
| Structure change via select lenders | Varies | Terms adjust |
| Walk away | None | Lose the deal |
Re-quote first. On a rented property the right product is a landlord or dwelling-fire policy, not a homeowners policy. Cheaper replacement coverage can fall short of lender requirements, so a lower number is only a win if the policy still qualifies. Name the correct insured too: when an LLC will hold title, the policy has to match the borrowing entity, subject to lender program eligibility.
Start early. An investor who waits too long can end up in a surplus-lines placement. The NAIC describes surplus lines as non-admitted insurers that cover risks the standard admitted market does not write, and notes they lack guaranty fund protection. Practitioners generally find that coverage costs more, and the underwriter simply runs the higher premium into PITIA. The NAIC’s model act also expects a diligent search among admitted insurers first, and a broker placing surplus lines needs a separate license. In practice, that means your agent needs time.
Raise the down payment or shrink the loan. This lowers principal and interest, which offsets insurance inside PITIA. Be realistic about the limit: taxes and insurance do not shrink with the loan, so extra equity trims only the principal-and-interest share. And a larger down payment never erases leverage caps, credit floors, reserve rules, or property eligibility. Purchase leverage on most files lands at 75% to 80% LTV on an investment property purchase, with select high-leverage programs reaching 85% for strong borrowers, typically around a 700 score or better, subject to lender guidelines.
Use compensating strengths. Stronger credit and reserves help a file. Credit floors vary across the network: 620 exists in parts of it, most programs want around 660, and 700 or above opens the strongest leverage tiers. Reserves are commonly around 6 months of PITIA, stepping up to about 9 months on loans above $1,500,000. Here is the catch: a higher premium raises PITIA, which raises the reserve target too. Reserves vary by lender, leverage, loan size, and transaction type.
Restructure through select lenders. Extended terms and interest-only periods are available through select lenders in the network, and ARM structures exist for investors who want them. Coverage below 1.00 is also available through select lenders in the network, with leverage and terms adjusted. Treat that as a deliberate structural choice, not a rescue for a property that fails at every reasonable price. Many select programs start at 1.00, and stronger ratios open better pricing and leverage.
Doing It From a Distance
A remote investor can run this entire process without visiting the property, but the sequence matters.
1. Pick a licensed local agent in the property’s state, ideally one who places landlord policies regularly.
2. Gather property facts before quoting. Carriers ask about roof age, wiring, plumbing, square footage, and construction type. A placeholder quote built on guesses tends to change.
3. Request identical coverage from several carriers so the comparison is real.
4. Verify condition remotely through an inspector or contractor you trust. Roof age is the classic driver, and carriers set their own roof rules with no single cutoff age. A switch to actual cash value on an older roof can hurt you without moving the ratio at all.
5. Match the named insured to whoever will be on the loan.
6. Hand the lender the declarations page or binder showing the annual premium. The lender divides it by 12 and adds it to PITIA. Flood premiums are added too when required, and separate wind and flood policies both count.
BiggerPockets points to aging plumbing, more litigation, and older housing stock as drivers of premium increases, which is a useful checklist when you ask an inspector what to look for. Its Texas single-family example is instructive about scale: even a sizable percentage increase on a typical policy adds only a modest amount each month. Small in isolation, meaningful on a thin file.
Timing: Before Closing vs. After
Before closing, the new quote is what the lender uses, so the premium you document is the premium that counts. If the final bound premium comes in above the placeholder, the ratio gets recomputed. That is the reason to push for a real quote early rather than an estimate.
After closing, the effect shows up differently. A renewal hike does not usually trigger a retest on the existing loan. It shows up in your cash flow, and again at the next refinance, when the lender runs the then-current premium. Escrow changes how the premium is paid, not whether it counts, and whether a loan carries escrow depends on the program.
Fix It or Walk Away?
A workable rule: fix the deal if one or two cheap levers restore the ratio with room to spare. Walk if you need three or four expensive levers at once.
Consider an investor looking at two rentals with similar rent. The first misses by a small margin and a re-quote on identical coverage closes the gap. The second only clears if the investor adds a large down payment, absorbs a higher deductible, and negotiates the price down. The first is a fix. The second is a signal to re-examine the market, not the loan. If insurance keeps surprising you in a given area, a different submarket may pencil better than any restructuring.
This is a genuine judgment call for investors who believe in a property’s appreciation story. If you are buying for long-term equity and have the reserves, a thin ratio on a strong asset is defensible. If you are buying for monthly income, a thin ratio is a thinner margin than it looks.
For related reading, Lendmire’s piece How an Out-of-State Investor Vets Hard Money for a DSCR Exit covers a related remote-investing decision, where the exit loan has to clear the same coverage test. The complete DSCR loans guide covers the program basics.
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.
What the Ratio Does Not Tell You
Clearing 1.00 is not the same as positive cash flow. Coverage compares rent to PITIA only. Repairs, vacancy, management fees, utilities, and capital expenses all sit outside the calculation. An absentee owner pays for management, and that cost never appears in the ratio.
So a file can clear the lender’s test and still leave thin monthly margin. Stress-test the property at a higher insurance premium than the quote before you commit. If the deal still works at a stressed premium, it likely holds up at renewal. If it only works at today’s quote, you are carrying more risk than the ratio suggests.
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.
Key Terms Defined
PITIA: The full monthly obligation on the property, covering principal, interest, taxes, insurance, and association dues.
Coverage ratio (DSCR): Monthly rent used for lender review divided by PITIA; programs set their own minimums, subject to lender guidelines.
Surplus lines: Insurance from non-admitted carriers that cover risks the standard market does not write.
Declarations page: The policy document showing coverage and the annual premium a lender uses.
Compensating strengths: File features such as credit and reserves that support a thinner ratio.
Frequently Asked Questions
Does insurance count in the DSCR on a rental?
Yes. On one-to-four-unit loans the annual premium is divided by 12 and added to PITIA, so a higher premium lowers the ratio when rent stays fixed. Larger multifamily loans may use net operating income instead, where insurance is an operating expense.
Can I switch to a cheaper policy to fix the ratio?
Sometimes, but only if the cheaper policy still meets lender requirements. A homeowners policy on a rental, or reduced replacement coverage, can fail review. Compare quotes on identical coverage and confirm the lender will accept the policy before you bind it.
Does a bigger deductible help?
It can lower the premium, but you take on more out-of-pocket risk, and lenders set their own limits on deductibles. Weigh the premium savings against your reserves, since a large claim would come out of cash.
Does a renewal hike after closing trigger a retest?
Typically not on the existing loan. The hike hits your cash flow and shows up when you next refinance, which is why stress-testing premiums at purchase is worth the effort.
Is a below-1.00 path available if insurance pushes me under?
Coverage below 1.00 is available through select lenders in the network, with leverage and terms adjusted. It is a structural choice with real trade-offs, and eligibility depends on credit, reserves, and property review.
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire, a mortgage broker arranging DSCR financing through select lenders across 41 markets including Washington, D.C., can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. Reach the team at 828-256-2183 or request a quote through the Lendmire quote page. Programs change, every file is reviewed individually, and nothing here is a commitment to lend.
Markets with the sharpest insurance inflation tend to cluster in the south and southeast, and the NAA’s metro analysis found 29 of 94 metros saw more than 100% real growth in insurance costs, so the quote you collect before you offer may be the most valuable number in the whole deal.
For current guidelines and terms, see Lendmire’s DSCR loan programs page.
About Lendmire
Lendmire — NMLS# 2371349 — is a DSCR and non-QM mortgage brokerage with investor loan programs in 41 markets, including Washington, D.C. DSCR eligibility is commonly reviewed by the lender around property-level rent rather than personal income documentation, subject to lender guidelines, and the brokerage helps arrange financing for LLC-owned portfolios beyond conventional financed-property limits. Recognized by Scotsman Guide as a Top Mortgage Workplace in 2025 and 2026.
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References
1. Federal Reserve: Rising Property Insurance Costs and Pass Through to Rents for Apartment Buildings
4. BiggerPockets: What’s Driving the Landlord Insurance Crisis
5. NAA Metropolitan Fragmentation and Insurance Inflation
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can an Investor With 5-50 Doors Held in LLCs Go Non-Recourse on DSCR? · Can a First-Time Investor Use Gift Funds for a DSCR Loan? · Can a DSCR Portfolio Close With One Eviction for an Out-of-State Owner?
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
Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.