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DSCR Loan No Down Payment - February 2024


Last updated: February 7, 2024


Can you get a DSCR loan with no down payment?


We get this question all the time and we want to set the record straight. The answer is no. Absolutely not. Unless you want to pay a very high interest rate, have a negative cash flow property, and waste a lot of time being led on by an unrealistic expectation.


The largest and most competitive institutional investors that buy DSCR loans all have a LTV of 80% in their strict and standardized guidelines. That means, 20% down on a purchase using a DSCR loan is going to be your most realistic and best option if you are trying to avoid a sizable down payment.


What is the minimum down payment for a DSCR loan?


We have seen some DSCR lenders advertise as low as 15% down (85% LTV), however, this is not a healthy, competitive or safe option for real estate investors. In practice, it is very difficult to get a DSCR loan with a down payment below 20% (80% LTV). We have received consistent feedback that it is extremely difficult and time consuming to get to the closing table with a 15% down DSCR loan term sheet. It's important to point out that the higher the LTV, the higher the rate.


DSCR Loan Rate By LTV


DSCR Loan Rates by LTV


LTV Credit Spread
50 3.25%
55 3.3%
60 3.35%
65 3.375%
70 3.4%
75 3.5%
80 4.0%

The credit spread in the table above may vary based on DSCR lender, prepayment penalty, number of units of the subject property, and market pricing demanded by investors that buy DSCR loans.


The credit spread is often referred to as the "risk premium" that institutional DSCR loan investors demand to receive above the benchmark "risk free" rate, which is typically the 5 Year US Treasury. Institutions that buy DSCR loans view higher LTV as riskier because the borrower has less equity in the property to provide protection in the event home prices decline and/or the property needs to be sold or foreclosed on.


Learn more about DSCR loan interest rates.


What are the risks of high LTV DSCR loans?


💸 negative cash flow -- consistently monthly losses, high financial stress
📉 high default risk -- inability to meet debt obligations
💸 bankruptcy, foreclosure -- personal guarantee required


DSCR loan LTV insights


Most DSCR lenders require a minimum DSCR of 1.0. That means the property generates exactly enough rent to pay the monthly mortgage payment (principal, interest, taxes, insurance). If the property requires maintenance or administrative work, that means you'll be losing money.


A DSCR of 1.1 means you generate a 10% cash flow margin above your monthly mortgage payment. Borrowers with credit scores of 720 or higher will qualify for the most competitive rate when their rental property has a DSCR of 1.1 or higher.


A DSCR of 1.2 means you will generate a 20% cash flow margin and may be required for borrowers with credit scores that are below 720 or 700 (depends on the program).


Interest rate directly affects DSCR. The higher the interest rate, the lower the DSCR. In an elevated interest rate environment, in many markets, it is common for the DSCR to be too low at max LTV.


DSCR Credit score Rate
1.0 700+ Uncompetitive
1.1 720+ Competitive
1.2 680+ Competitive