DSCR Loan Down Payment Requirements

When it comes to budgeting for a DSCR loan down payment, there’s a lot you have to keep in mind as an investor. Successful investors know the key to scaling their success is through proper planning and budgeting. When the full scope of a project is defined, you know exactly how much you’re spending and how much you’re going to make in profit.  

Whether you’re looking into DSCR loans for the first time or you’re a seasoned investor, Asset Based Lending is here to help you crunch the numbers. Let’s take a deeper dive into DSCR loans and what to expect when it comes to DSCR loan down payments.  

What is a DSCR Loan?

A DSCR loan is a real estate loan based on a property’s debt service coverage ratio (DSCR), which compares the property’s cash flow to debt payments in order to determine eligibility. Rather than focusing on the borrower’s personal income, a DSCR loan will use the property’s projected rental income and liquidity to assess whether the borrower will be able to sustain the payment schedule. 

For example, take a rental property with a monthly Net Operating Income (NOI) of $1,000 and an $800 monthly mortgage. This would equal to a DSCR of 1.25 ($1,000 / $800). 

The higher the DSCR, the more easily the property can cover its debt obligations and the less risk it presents to the lender. Meanwhile, a 1.0 DSCR indicates the rental generates just enough to cover its debt service. And anything less than 1.0 means it can’t cover its debt service. 

What are the DSCR Loan Down Payment Requirements? 

A DSCR loan down payment can require as little as 20% for qualifying scenarios, depending on the Loan-to-Value (LTV) offered for the property. For example, Asset Based Lending offers up to 80% Loan-to-Value (LTV) on certain DSCR loans, so the down payment can be as low as 20%. The actual DSCR loan down payment can vary depending on the loan scenario, property, borrower qualifications, and current hard money lending guidelines. If a qualifying borrower is able to be financed up to 80% LTV, then their down payment will be as low as 20%.  

For new investors, it’s important to budget correctly and plan for additional financing, just in case you don’t qualify for the full 80% LTV. Having more than 20% set aside for a DSCR loan down payment will ensure that you don’t come up short.  

How Do I Calculate My DSCR Loan Down Payment? 

Your DSCR loan down payment is calculated by multiplying the price of the property by the percentage of your LTV. This gives you the total loan amount, and the remaining amount is the cost of your DSCR loan down payment.  

For instance, if you qualify for 80% LTV and your property costs $300k, you would run the following numbers:  

$300k property × 80% LTV = $240k loan  

$300k property – $240k Loan = $60k down payment  

In this scenario, a DSCR loan down payment of 20% for a property costing $300k would be $60k. Likewise, the same math can help you figure out how much you can borrow in a DSCR loan. Once you know how much your property costs and how much money you have available for a down payment, you can calculate different LTVs to find out exactly what you can afford.  

Can I Get a DSCR Loan with 20% Down? 

It is possible to get a DSCR loan with a 20% DSCR loan payment, as long as you are a qualifying borrower. Qualification varies from borrower to borrower, depending on factors like their borrowing experience, property appraisal, credit score and more. At Asset Based Lending, we believe in both working with new investors as well as scaling the success of our borrowers over time.  

The more you work with hard money lending, the stronger your qualifications become. Keep in mind that everyone starts somewhere, and Asset Based Lending is prepared to help support you every step of your investment journey.  

What Else is Required for a DSCR Loan Besides a DSCR Loan Down Payment?

Debt-Service Coverage Ratio
Lenders typically require a DSCR of 1.25 or higher. However, Asset Based Lending has an average DSCR requirement of 1.2 and offers some programs with even lower DSCR minimums. 

Credit Score
While not the most important factor, your credit score can work for or against you as a borrower. Most lenders (including ABL) require a FICO credit score of at least 660. 

Appraisal
To determine a property’s market value (and thereby LTV), lenders often require a professional appraisal. Typically, this expense is rolled into your closing costs. 

Property Type and Use
DSCR loans are only available for properties that generate regular rental income. These could be single-family rentals, multifamily properties, or even commercial buildings. 

At ABL, we offer DSCR loans for all of the following: 

• 1-4 unit residential buildings (single-family homes, duplexes, triplexes, and fourplexes)
• Townhomes and condos 
• 5-8 unit multifamily properties 

In addition, we offer DSCR financing for short-term rentals (STR), i.e. properties rented out for days (not months) at a time to travelers via STR platforms like Airbnb and VRBO. Our DSCR loan program now features eligibility through AirDNA qualification, making it easier than ever for borrowers to close on deals and scale success.  

Read more on our full DSCR loan rates and terms now.  

Calculate Your DSCR Loan Down Payment with Asset Based Lending

Do you have a property in mind? You can qualify with Asset Based Lending to get started today. Share a few details about your project and experience, and we’ll let you know if you would be a good fit for a DSCR loan. Unlike traditional banking, our loan experts will require minimal paperwork for a streamlined process. If you qualify, we’ll get back to you in a day or two to with details and next steps.  

Successful investors know that good deals don’t wait. Whether you’re just getting started in your investment career or you’re looking to scale your portfolio, ABL is here. Make your next investment project a reality and pre-qualify with Asset Based Lending now.