Our DSCR loan page covers the whole program. This post is about one screening habit that talks a lot of investors out of good deals, and about what to use instead. If you want the formula itself first, our how to calculate DSCR guide walks through it line by line.

Every market figure here was checked on November 8, 2026 against HUD User's FY2027 Fair Market Rents and Census Bureau QuickFacts. The payment math uses Freddie Mac's 7.18% 30 year average from November 5, 2026 as a reference rate only. It is a conventional loan average, not a DSCR rate and not a rate we are quoting.

No, you do not need 1%

The 1% rule is a quick filter investors made up, not a lending standard, and it is much stricter than a 1.00 DSCR at current rates.

Take a $200,000 house. The 1% rule wants $2,000 a month. With 25% down, the $150,000 loan at 7.18% has a principal and interest payment of about $1,016. Add $167 a month of tax at 1% of value and $100 of insurance at 0.6% of value, both example numbers, and the full payment is about $1,283. Rent of $1,283 is a 1.00 DSCR. That is 0.64% of the price, not 1%.

What the 1% rule measures

It measures gross rent against price and nothing else, which is why it can be wrong in both directions.

It ignores the rate, the down payment, the tax bill and the insurance. A 1% house in a county with a heavy tax rate can still be a weak rental, and a 0.70% house with low taxes and an interest only payment can be a strong one. The DSCR calculation puts all of those into the denominator, which is why the lender uses it.

The rent a DSCR actually needs

At 25% down and a 7.18% reference rate, principal and interest alone take about 0.51% of the price every month, and tax and insurance add the rest.

These are example numbers, not market data and not a quote. They assume a 30 year fixed, 25% down and no HOA. An HOA dues payment goes into the denominator too, so a condo needs a higher rent to price than a house.

Run the DSCR on your deal

How the rate moves the line

The higher the rate, the more rent a 1.00 DSCR needs, but even at 8% it stays well under 1% of the price.

Here is the same example house at four rates. These rates are hypothetical, chosen only to show the effect. They are not quotes, not DSCR rates and not rates we offer. Tax is 1.0% and insurance 0.6% of value per year, with 25% down.

That is why the 1% rule never really matched how DSCR lending works. It was a cushion for repairs and vacancy wrapped into a single number, and the cushion it builds in is large at any rate in this range.

10 metros, checked

Of ten metros we checked in states where we place DSCR loans, only the Detroit area comes in at about 1% at the county median, yet all but one clear 1.00 on our example math.

For each metro we used HUD's FY2027 three bedroom Fair Market Rent and the Census median value of owner occupied homes for the core county. The last column adds the same example 1.0% tax and 0.6% insurance to every market so they compare evenly; your real tax bill will differ, sometimes a lot.

Read that table the way a lender would. Nine of the ten fall clearly short of the 1% rule, and eight of those nine still clear 1.00. An investor using 1% as a hard filter would have passed on Indianapolis, Kansas City and Pittsburgh at the median, three markets where a three bedroom covers its example payment more than 1.2 times.

One worked example, with example numbers, not market data and not a quote. A Kansas City area three bedroom bought at the Jackson County median of $230,500 with 25% down has a $172,875 loan and about $1,171 of principal and interest at 7.18%. Add $192 of tax and $115 of insurance at our example rates and the payment is about $1,478. At HUD's $2,020 rent the ratio is about 1.37. The 1% rule would have demanded $2,305 of rent, a number the median house does not reach, and an investor relying on it would never have run the deal at all.

If one of these markets is on your list, start with the state page: Michigan, Indiana, Missouri, Pennsylvania, Oklahoma, Alabama, Iowa, Tennessee, Kentucky and South Carolina. For Memphis with the real Shelby County and city tax rates, read our best Tennessee cities for rental property post.

How interest only moves the line

With interest only at 30% down, a 1.00 DSCR needs rent of about 0.55% of the price on the same example tax and insurance, and a 1% house lands near 1.81.

Our program allows ten years interest only on a 40 year term, or a 30 year term with interest only, up to 70% LTV on a purchase or rate and term refinance and 65% on a cash out. Interest only lowers the payment the ratio is measured against, so it lowers the rent to price you need. It also means you are not paying down principal during the interest only years. Our interest only DSCR loan post shows when that trade is worth it.

Where the 1% rule still helps

It is still a decent first glance for cash flow after repairs, vacancy and management, which a DSCR does not measure.

The DSCR only asks whether the rent covers principal, interest, tax, insurance and any HOA. It does not set aside money for vacancy, a new water heater or a property manager. A house at 0.65% may qualify at 1.00 and still lose money in a bad year. A higher rent to price leaves room for those costs, so it is fair to want more than 1.00. Just do not confuse your own cash flow target with what the loan requires.

Where screening goes wrong

It goes wrong when investors screen with a median and then buy a specific house.

A better screen in four steps

1. Find the rent. Start with HUD's Fair Market Rent for the county and bedroom count, then check real listings on the street.
2. Find the real tax bill from the county, not an average.
3. Get a landlord insurance quote and add any HOA.
4. Run the calculator above at 25% down, then at 30% down with interest only. If the ratio clears your target, send it to us.

No reserves are required when the loan is under $1 million and the LTV is under 75%, and a 100% gift can cover the down payment, closing costs and reserves; our DSCR reserve requirements post covers the details. If you would rather qualify on your own income, our bank statement loans page and our loan programs page cover the other options.

Sources

All sources checked November 8, 2026. Data changes, so confirm before you rely on it.

1. HUD User, FY2027 Fair Market Rents by county. Three bedroom FY2027: Wayne County, MI (Detroit Warren Livonia) $1,777; Marion County, IN $1,991; Jackson County, MO $2,020; Allegheny County, PA $1,773; Oklahoma County, OK $1,713; Jefferson County, AL $1,727; Polk County, IA $1,856; Shelby County, TN $1,717; Jefferson County, KY $1,629; Greenville County, SC $1,801
2. U.S. Census Bureau QuickFacts, median value of owner occupied housing units, 2020 to 2024. Wayne $178,500; Marion $224,000; Jackson MO $230,500; Allegheny $227,600; Oklahoma $222,900; Jefferson AL $240,000
3. U.S. Census Bureau QuickFacts, Jefferson County KY, Greenville County SC, Polk County IA and Shelby County TN. Median value: Jefferson KY $248,400; Greenville $299,000; Polk $262,100; Shelby $249,100
4. Freddie Mac Primary Mortgage Market Survey. 30 year fixed average 7.18% as of November 5, 2026 (reference only)
5. Pillar Mortgage Group DSCR program terms. DSCR as low as 0.50; interest only 10 years on a 40 year term or a 30 year term with interest only, up to 70% LTV purchase or rate and term and 65% cash out; no reserves under $1 million and under 75% LTV; 100% gift; 35 states

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