Guides
DSCR Loan Down Payment Requirements
Most DSCR loans need 20–25% down. 15% is real at 720+ credit.
A 20% to 25% down payment is standard, since the maximum loan-to-value (LTV) for a single DSCR loan is usually 80%.
- "10% down" is usually a seller-carried second. Plus the full cash-to-close math.
Most DSCR purchases require 20% to 25% down. The 3.5%, 5%, and zero-down options available with some owner-occupied mortgages are generally not available for DSCR loans.
Investors often underestimate how much cash they will need to close. In addition to meeting the minimum down payment, they must budget for closing costs, prepaid expenses, and any reserves the lender requires after closing.
Why the 80% ceiling exists
The property's rental income is not the only factor that determines the maximum LTV. DSCR mortgages are often packaged and sold to institutional buyers, such as pension funds, insurance companies, banks, and credit unions. These buyers generally require borrowers to have at least 20% equity, which reduces their risk if the property loses value. Because of that requirement, the secondary market often sets an 80% maximum LTV before the lender reviews the individual application.
This also explains why stronger cash flow does not necessarily lower the down payment. A property with a 1.50 DSCR may qualify for a better interest rate or pricing tier than one with a 1.05 ratio, but both loans may still have the same maximum LTV.
Down payment by tier
| Down payment | Structure | What it takes | Rate impact |
|---|---|---|---|
| 25%–35% | One standalone DSCR mortgage | Often required when the ratio is below 1.00 or the borrower is a first-time investor under certain programs | Access to the lowest available pricing |
| 20%–25% | One standalone DSCR mortgage | The standard tier, producing 75%–80% LTV | The strongest pricing commonly available under regular programs |
| 15% | One DSCR mortgage at 85% LTV | Approximately 680–720+ credit, one to four units, and usually existing ownership of a primary residence | A substantial premium; one lender indicates pricing about 1.5 to 2 percentage points above the 20%-down tier |
| 10% | An 80% first mortgage plus a seller-financed second lien | A seller with little or no existing mortgage who agrees to carry part of the purchase price | The first mortgage carries a premium similar to the 15%-down tier, and the second lien has its own interest rate |
| 0% | No standard DSCR purchase structure | Not applicable | Not applicable |
Published lender materials can seem contradictory. One lender may state that a DSCR mortgage cannot exceed 80% LTV, which requires at least 20% down. Another may advertise 15% down, or 85% LTV, and a 10%-down option, or 90% combined LTV.
The difference is usually in how the financing is structured. The 85% LTV offer may be available as a standalone DSCR loan, while the 90% option may combine an 80% first mortgage with a 10% second lien.
Where the down payment can come from
- Personal funds: Lenders typically require two months of account statements to verify the money. Funds in personal, business, and retirement accounts may all be eligible.
- Gifts: Many programs allow gift funds to cover part of the down payment. Under one lender's published policy, the borrower must contribute at least 5% from their own funds. For example, a 15%-down transaction could consist of the borrower's 5% contribution and a 10% gift. The donor can generally be a relative, domestic partner, fiancé, former relative, or godparent, but not anyone with a financial interest in the sale, such as the builder, developer, or real estate agent. Gift funds generally cannot be used to meet reserve requirements.
- Seller concessions: The property's current owner may agree to use part of the sale proceeds to cover the buyer's closing costs and prepaid expenses. Depending on the program, these credits are typically limited to 3% to 6% of the lower of the purchase price or appraised value. They cannot be used for the down payment or satisfy any requirement that the borrower contribute their own funds.
- Equity in another property: A cash-out refinance, HELOC, or investor HELOC can provide purchase funds if the property securing that debt retains the required equity. Cash-out transactions usually carry a pricing adjustment; see current DSCR loan rates.
- Section 1031 proceeds: Exchange funds are generally acceptable for the down payment. Verify that the purchase schedule works with the applicable exchange deadlines before submitting an offer.
The number that actually matters: cash-to-close
The down payment is only one part of the buyer's total cash requirement. For a $400,000 purchase, the full amount is calculated as follows:
| Item | Example amount | Basis |
|---|---|---|
| Purchase price | $400,000 | — |
| Down payment at 25% | $100,000 | Produces a $300,000 mortgage at 75% LTV |
| Closing costs at 3% of the loan | $9,000 | Typical DSCR closing costs range from 2% to 5% |
| Prepaid property taxes and insurance | $3,500 | Amount varies according to the closing date and state escrow requirements |
| Reserves: 6 months × $2,375 PITIA | $14,250 | Must remain documented separately from money used at closing |
| Total documented funds required | $126,750 | The full amount to use for planning |
The buyer needs $126,750 in documented funds—about 27% more than the down payment alone. Reserves are easy to overlook but they must remain available after closing and cannot come from the money used to complete the purchase.
Warning signs on a low-down-payment offer
Some low-down-payment options are legitimate, but advertisements do not always explain the requirements or financing structure associated with those offers. Before budgeting for a lower than standard down, such as a 15% down, check which DSCR lenders publish a 15% tier, or the down payment rate you're hoping to pay, and confirm that the option is still available under the lender's current guidelines.
- The purchase price has been inflated to create artificial equity: An appraisal should reveal when the agreed-upon price is higher than the property's supported market value.
- The seller financing or credit is absent from the disclosures: Any second lien, seller financing, or seller concession must be listed on the settlement statement and accounted for in your DSCR loan closing costs.
- Someone recommends altering a bank statement: Submitting edited financial records is mortgage fraud, regardless of who proposed the changes.
- The offer claims 10% down with no second lien: Ask for a written breakdown of the loan and lien structure. If the first mortgage covers only 80% of the purchase price, the provider should be able to explain how the remaining 10% is financed. If it cannot, the offer may not be a real DSCR loan.
Frequently Asked Questions
No. Legitimate DSCR purchase loans require the borrower to have equity in the property, typically at least 20%. Some highly qualified borrowers may find a standalone loan with 15% down. Another option combines an 80% first lien with seller financing, which can reduce the buyer's cash down payment to about 10%, but it does not eliminate the down payment entirely.
Most do. Because DSCR loans commonly have an 80% maximum LTV, borrowers typically need 20% to 25% down. Some programs allow 85% LTV, which means 15% down, but eligibility often requires owning a primary residence and meeting a minimum credit score between 680 and 720, depending on the lender. One lender reports a rate 1.5% to 2% higher than it offers with 20% down.
No. A property with a 1.50 DSCR generally requires the same minimum down payment as one with a 1.05 DSCR. A higher ratio may lead to a lower interest rate or better pricing, but it usually does not raise the maximum LTV or reduce the required down payment.
Usually, yes. Gift funds can often cover part of the down payment, but they generally cannot be used for reserves. Under one published program, the borrower must provide at least 5% from their own funds and may use a gift for the rest of a 15% down payment, resulting in 85% LTV. The donor cannot have a financial interest in the purchase. An exception may apply to reserve funds for foreign-national borrowers.
Generally, yes. Most DSCR lenders accept money drawn from equity in another property through a HELOC, investor HELOC, or cash-out refinance. The property securing that financing must retain sufficient equity after the withdrawal. For cash-out refinancing, that commonly means leaving approximately 25% equity in place.
Plan for approximately 25% to 35% down when rental income does not fully cover the payment. The additional equity offsets the property's cash-flow deficit, and the lender will generally charge more as well. An interest-only structure may be less expensive than contributing more cash because it lowers PITIA and can raise the ratio above 1.00.
DSCRLoans101 is an independent editorial site. We do not originate loans and we are not affiliated with any lender. Every figure on this page comes from published lender materials or primary sources, and we publish the date we verified it.
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