Property Tax

Property tax is an annual tax charged by local governments on the assessed value of real estate. It is the T in PITIA, the payment residential DSCR lenders divide rent by. Higher taxes lower the ratio directly, even when the loan and the rent stay the same.

The example property carries $6,000 a year in tax, or $500 a month in the payment. If a reassessment raises that to $7,200, the payment grows by $100 and the DSCR falls from about 1.20 to about 1.17.

Purchases often trigger a reassessment at the new price, so lenders underwrite with the tax bill expected after closing, not the seller's old one. Use the post-sale estimate in the calculator and check the county's rate before making an offer, especially in states with large jumps on sale.

Further reading: Property Tax on Wikipedia.