Home Insurance

Home insurance covers a property against damage from hazards such as fire and wind, plus liability claims. Rentals need a landlord or dwelling policy rather than an owner-occupant policy. The premium is the I in PITIA, so it sits in the denominator of a residential DSCR.

The example property pays $2,500 a year, about $208 a month. Shopping that down by $600 a year trims $50 from the payment and lifts the DSCR from about 1.20 to about 1.22. In markets with high wind, flood or wildfire premiums, insurance can move the ratio more than the interest rate does.

Lenders require proof of coverage at closing and usually want the lender named on the policy. Flood insurance is added when the property sits in a mapped flood zone, and it goes into the payment as well. Many DSCR programs also ask for rent loss coverage.

Further reading: Home Insurance on Wikipedia.