Debt Service Ratio

[Steven Gitter]

Hello all.  New to BiggerPockets. Currently, I own my primary residence and a rental condo.  My question:

My primary residence has a mortgage of $3400 and the value of my house is $850,000.  Total expenses for the year are $40,800 which is roughly 5% of the home value.

My condo costs $1080 a month (high HOA) and has a value of $100,000. Total expenses are $13,000 which is roughly 13% of the value. My condo pays for itself and if I rented out my primary it would cover itself as well.

Question: Is there any metric you use or ratio when looking at debt service or is it all about the numbers?  I'm sure, there is no one answer to this question but wanted to hear some opinions.  When looking for rental properties is there a specific % you want the debt to be in relation to the value of the property?

Thanks in advance!

[Frank Pena]

Hello Steven, 

Basically Steven the ratio only works by calculating only the property your purchasing PITIA (debt) dividing by the income is going to generate.

If it covers the mortgage you are at a DSCR of 1, if you have profit the DSCR is going to be over 1, and if the income cant cover the mortgage DSCR will be under 1.

Now Steven every lender is different in what DSCR ratio they allow. Some lenders only do above 1 DSCR.

Some lenders do not care about the ratio and can still fund the loan, but the DSCR under 1 will cause a higher down payment and a higher rate.

Feel free to private message me so i can help you out more !!

Good luck !!