A DSCR below 1.0 means a property’s rental income does not fully cover its monthly mortgage payment. Some programs may still consider these scenarios, but availability, terms and requirements vary by lender and program, and not every scenario will qualify. This guide is educational and does not predict an outcome for any specific property.
What a Sub-1.0 DSCR Means in Practice
Suppose a property rents for $1,800 per month and the full monthly payment (PITIA) is $2,000. The DSCR is 0.90 ($1,800 ÷ $2,000), and the borrower would need to cover the $200 monthly shortfall from other income or reserves. This can occur on purchases focused on appreciation or in higher-cost markets where rents trail the purchase price. For a broader look at how ratios are viewed, see what is a good DSCR for an investment property.
How Lenders May Respond to a Lower Ratio
Where programs allow a ratio below 1.0 at all, lenders may offset the added risk in one or more ways. These are general examples, not commitments, and the specifics depend on the program and the borrower:
- Lower leverage: a larger down payment or a lower maximum loan-to-value
- Additional reserves: more liquid reserves than a stronger-ratio scenario might require
- Credit profile: greater emphasis on credit score and borrower experience
- Pricing: rates and fees that may be higher than for a scenario with a stronger ratio
- Program limits: some programs set a minimum ratio, and some scenarios may not be eligible at all
See the DSCR loan requirements guide for the general documentation, credit and reserve factors lenders review.
Situations Where Investors Look at a Sub-1.0 Property
- Value-add properties where rent may rise after renovation or lease-up
- Markets where the investment thesis centers on long-term appreciation rather than monthly cash flow
- Short-term holds ahead of a planned refinance, which depends on future rents, values and lending requirements that cannot be assumed
- Portfolio investors who can support a lower-yielding property from other income, noting that DSCR is generally evaluated property by property (see how rental income is calculated for a DSCR loan)
None of these situations guarantees financing, and each investor should weigh the risk of a monthly shortfall.
Ways to Review Your Ratio Before Applying
- Verify the rent figure. Check that the market-rent comparables reflect current rental listings.
- Revisit the loan amount. A larger down payment lowers the payment and raises the ratio, but it also requires more cash.
- Compare rates and terms. A lower interest rate reduces the principal-and-interest portion of the payment, where available.
- Review carrying costs. Get current quotes for insurance, confirm tax estimates and check HOA dues.
- Run the numbers first. Use the DSCR Calculator to test different purchase prices and down payments against the same rent figure.
Frequently Asked Questions
Is there a minimum DSCR to qualify?
It varies by lender and program. Some set a minimum ratio, and others review each scenario individually. Contact us to understand how a specific scenario may be viewed.
Does a lower DSCR affect pricing or required cash?
It can. Lower ratios often come with different pricing, leverage or reserve requirements than stronger ones, but terms depend on the program and are subject to underwriting.
Can a property be refinanced later if the ratio improves?
A refinance may be an option if rents rise or the balance falls enough to improve the ratio, but eligibility and terms at that time depend on market conditions, property value and lender requirements.
Explore Your Options
Test your numbers with the DSCR Calculator, review the DSCR loan requirements, and when you are ready, check your eligibility →
Business-purpose investment property financing. Subject to underwriting approval and final terms. FAAS Funding provides business-purpose financing information for real estate investors and businesses. Program availability, terms, pricing, leverage, documentation and eligibility vary by transaction and funding source and are subject to underwriting and applicable requirements. FAAS Funding is not a bank and does not provide legal, tax or investment advice.