Are you considering taking out a DSCR loan to purchase your next property? If so, it’s essential that you understand the importance of making an upfront payment. Knowing what to expect and how down payments are calculated can help ensure you make a well-informed decision when applying for DSCR financing.

    While this can be an attractive loan for many people, it could have a larger down payment requirement, so you must have ample cash reserves.

    Do DSCR loans require a down payment? Most lenders require some form of advance payment in order to be approved for a DSCR loan. This is typically expressed as a percentage of the total amount borrowed.

    It’s critical that borrowers familiarize themselves with the different types of down payment assistance programs available for these loans. This includes who qualifies, how to apply, and other requirements. That way, they can take full advantage of them if eligible.


    • In general, DSCR loans have been designed specifically for real estate investors who would like to qualify for a mortgage using information from their cash flow instead of having to prove their income using tax forms.
    • Typically, the only requirement for this type of loan is that you have the ability to pay back the cost of your mortgage using rental income from whatever property you purchase.
    • The DSCR ratio is used to assess whether your property meets these criteria, but different lenders are going to have different requirements for the specific DSCR ratio that you need to meet.
    • Do DSCR loans require a down payment? A DSCR loan typically requires a larger down payment, but there are several factors that will play a role in the size of the down payment required.

    What Are the DSCR Loan Down Payment Requirements?

    When it comes to getting a DSCR loan, the down payment requirements depend on several factors, like your debt service coverage ratio and net operating income.

    Generally, you’ll need between 20-25% of the total loan amount.

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    It’s essential to take into account various considerations while working out how much money you need for a down payment. This includes looking at what your credit score is like and calculating the loan-to-value ratio so that any monthly payments are manageable.

    All in all, understanding these components will help ensure that you have enough funds when applying for a DSCR Loan.

    Graphic featuring four stars and text that reads, “Benefits of Our DSCR Loans: DSCRs as low as .75%; Credit scores as low as 620; Down payments as low as 20%; Loan amounts up to $5,000,000”.

    Is the Down Payment Requirement the Same for Every Lender?

    They are not necessarily going to be the same from lender to lender. Each lender has their own set of down payment requirements, so it’s not a one-size-fits-all situation. It all depends on what kind of borrower you are, with factors such as your debt service coverage ratio, net operating income, and credit score playing a role in how much money you’ll need to put down.

    Plus, market conditions can also influence your required down payment amount. If things look more secure on the mortgage front, you may be able to get away with putting less upfront cash out of pocket.

    This is another reason why it is prudent to reach out to professionals who can work with you to assess your options and compare your choices.

    What Impacts the Required Down Payment for DSCR Loan?

    Your total debt service coverage ratio is likely going to have a major impact on how much money you’re expected to pay upfront when applying for a DSCR loan. Your gross rental income will come into play as well. Generally speaking, having a higher rent means that lenders might require less from you in terms of an initial deposit.

    Of course, don’t forget about your credit score either, as people with better scores typically won’t need to bring quite as much capital to the table when they apply.

    Image of man sitting in front of a laptop checking his credit score of 765 on his phone.

    Last but not least, keep tabs on current market circumstances. More stability in the mortgage market generally means less risk. This might allow you to save money on your down payment.

    What Is the Benefit of Putting Down a Larger Down Payment?

    The amount of money you put down on a house can make or break the terms of your mortgage repayment. A larger down payment could open up opportunities to purchase an expensive property at a lower interest rate, but there are advantages to putting less upfront too. Let’s take a closer look at how this affects your loan:

    Your initial investment directly impacts what sort of interest rate is set for you by the lender. Put simply, providing more funds gets you better rates. It shows that you’re not as risky and therefore incentivizes lenders with lower interests. These savings can add up over time, reducing monthly payments and overall interest paid in the long run.

    On the other hand, opting for smaller sums may lead to higher rates, which usually isn’t ideal if budgeting is important to you. If you want to save money on interest, putting more money down is likely beneficial.

    In addition to creating cheaper repayments through lower rates, bigger deposits also equate to smaller monthly payments due to having less balance leftover from borrowing fewer funds initially. Typically, a larger down payment means you don’t have to borrow as much money, so you have less to pay back. It can shrink the size of your monthly payments significantly.

    So, depending on your financial situation and goals in mind when buying a home, deciding to put more towards that first payment could have a notable payoff.

    How to Qualify for the Best DSCR Loan Terms

    If you’re looking into purchasing or refinancing an investment property but don’t have enough personal income to qualify for a traditional loan, a DSCR mortgage may be the answer.

    To get approved and secure funding, your rental revenue must meet or exceed the lender’s coverage ratio criterion, which usually ranges from 1.0x to 1.5x (monthly rental income divided by total mortgage payment).

    Plus, applying is much simpler than regular investment property mortgages since eligibility relies mostly on the rent generated by the property rather than your financials.

    So, if you’re someone who wants to avoid handing over tax documents and employment records, this could be just what you need. You might even be able to get to the closing table more quickly.

    Graphic that depicts the following equation: DSCR = Gross Rental Income / Total Debt Service with text underneath it that reads, “Doesn’t Qualify <.75%; Does Qualify >.75%; Ideal 1.25”.

    Who Are DSCR Loans Best Suited for?

    Are you a real estate investor looking to qualify for a loan? The debt service coverage ratio (DSCR) mortgage could be the perfect fit. Unlike traditional mortgages that require tedious income verification, tax returns, and employment information, this type of loan takes into account the cash flow generated from your investment property and eliminates much of the hassle.

    For those who deduct expenses on their properties, this is especially advantageous since they don’t need to prove their income with pay stubs or tax documents, which may not actually reflect their true earnings due to deductions. This can make qualifying for the DSCR mortgage quicker and simpler than ever before.

    So, if you’re an investor in search of financing options, consider going with a DSCR loan. The added flexibility could be the perfect way to finance the purchase of your next property.

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    Apply for a DSCR Loan with Griffin Funding

    If you’re interested in applying for a DSCR loan, you need to work with a lender who has experience in this area. At Griffin Funding, we have worked with borrowers of all backgrounds, and we would be happy to work with you to help you find the right loan package to meet your needs as well.

    A DSCR loan could be your best option, but we encourage you to reach out to us to speak with one of our lending experts if you’re unsure. We can help you find the perfect loan for your specific financial situation.

    Apply online today or call 855-698-1098 for assistance.


    Frequently Asked Questions

    Are DSCR loans harder to get than conventional loans?

    What do you need to know about DSCR vs. conventional loans? Unlike conventional loans, qualifying for a DSCR loan doesn't rely on your personal financial situation. Instead, approval is based on the future cash flow of your property.

    This means that you'll likely have an easier time securing this type of loan than with other types.

    When it comes to financing, getting approved for a DSCR loan could be your ideal solution. To make sure that you get the best possible terms when applying for a DSCR loan, though, it's wise to work with qualified real estate professionals who can help guide you through the process.

    How do you calculate DSCR?

    To calculate your DSCR ratio, you need to find two numbers: Gross Rental Income and Debt Service (assessed annually). Use this DSCR formula to calculate your ratio.

    What is considered a good DSCR?

    A good debt-service-coverage ratio will vary depending on how established or successful a company already is. Usually, entities just starting out are expected to have lower ratios compared to more mature organizations, which may require steeper expectations in order to secure funding.

    In general, though, having any ratio above 1.25 would be considered fairly strong, while anything below 1 indicates potential difficulties in repayment down the line. We can help you find your DSCR if you need assistance.
    Bill Lyons

    Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 21 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up important with changes in the industry to deliver the most value to Griffin's clients.