How Property Taxes & Hazard Insurance Impact Your DSCR Coverage Ratio
The DSCR formula is straightforward: Gross Monthly Rent รท Total Monthly PITI Payment. Because Property Taxes and Hazard Insurance make up the "T" and "I" in PITI, local tax rates heavily influence your qualifying ratio.
Comparing High-Tax vs. Low-Tax States
For example, low property tax states like Alabama (0.41%) require lower monthly escrow holds, boosting your coverage ratio. High-tax states like Illinois (2.08%) require careful rent analysis to ensure the ratio stays above 1.00.
Underwriting Tip
Always estimate property taxes using post-sale reassessment values rather than current owner taxes to prevent unexpected escrow adjustments during underwriting.