DSCR stands for debt service coverage ratio. For a rental home, it's the monthly rent divided by the monthly payment, where the payment includes principal, interest, property taxes, homeowners insurance and any HOA dues (lenders shorten that to PITIA). A DSCR loan approves the purchase on that one number. Your pay stubs, tax returns and personal debt-to-income ratio stay out of it.
Reading the number
- Above 1.00: the rent more than covers the payment. A 1.25 means rent is 125% of the payment.
- Exactly 1.00: rent and payment match.
- Below 1.00: the owner covers part of the payment from other money. Many lenders stop at 1.00. AAA Capital Funding goes down to 0.75.
The rent figure comes from the lease or from the appraiser's market rent schedule, a form that compares the home with similar rentals nearby. AAA counts 100% of that rent on a DSCR loan.
A worked example
Take a $320,000 single-family rental with 25% down, so the loan is $240,000 at a 5.75% rate on a 30-year fixed. A rental doesn't get Florida's homestead exemption, so taxes here use about 1.9% of the price a year. Insurance runs $283 a month and there's no HOA.
| Piece of the payment | Math | Monthly |
|---|---|---|
| Principal and interest | $240,000 at 5.75%, 30 years | $1,400.57 |
| Property taxes | $320,000 × 1.9% ÷ 12 | $506.67 |
| Insurance | $283.00 | |
| Total payment (PITIA) | $2,190.24 |
If the home rents for $2,600, the DSCR is $2,600 ÷ $2,190.24, or 1.19. If it rents for $1,700, the ratio is 0.78, which still clears AAA's 0.75 floor. The lowest rent that works at 0.75 is $2,190.24 × 0.75, or $1,642.68 a month.
How it differs from rent on a home you live in
Owner-occupied loans handle rent another way. When you buy a 2 to 4 unit home with FHA or Conventional and live in one unit, the lender adds 75% of the other units' rent to your income and still checks your personal debt-to-income ratio. On a triplex or fourplex, FHA also runs a self-sufficiency test on 75% of all the rent. A DSCR loan skips your income and the 25% cut and looks only at the property. Because it's business-purpose credit under federal lending rules, it's meant for a home you won't occupy.
Raising a low ratio
Every fix works on one side of the division. A bigger down payment or a lower price shrinks the payment. A shopped insurance policy, especially one that gets credit for wind mitigation features, trims the PITIA. A higher documented rent lifts the top number. With 30% down on the same home, the loan drops to $224,000 and principal and interest fall to $1,307.20. The full payment becomes $2,096.87, and the same $2,600 rent now produces a 1.24 ratio.
Plug a property into the DSCR calculator to see its ratio before you make an offer. For an investor purchase near the 0.75 line, call AAA Capital Funding at 888-601-8344 and we'll price it with a few down payment options.