DSCR loans typically require little to no down payment, which sets them apart from most other commercial real estate loans

DSCR stands for Debt Service Coverage Ratio — a measure of how much income a property generates compared to the debt payments on it. A DSCR loan is a commercial real estate loan where the lender approves you based on the property's income, not your personal income. Because the lender focuses on whether the property itself can pay the loan, many DSCR lenders will finance 80 to 90 percent of the purchase price, meaning you put down 10 to 20 percent — or sometimes nothing at all.

The catch is that zero-down DSCR loans come with higher interest rates and stricter property requirements than loans where you put money down. A property must show strong rental income history to may have access to for the lowest down payment options. If you are buying a property that is not yet generating income, or one with inconsistent rental history, you will likely need to put down 20 to 25 percent.

Key Takeaways

  • DSCR loans can require as little as zero down payment, though 10 to 20 percent down is more common and usually comes with better interest rates.
  • The property's rental income history, not your personal credit, determines whether you can put down less — lenders want proof the building pays for itself.
  • Zero-down DSCR loans exist but carry higher interest rates and are only available on properties with strong, documented rental income.
  • If the property is not yet rented out or has gaps in income history, expect to put down 20 to 25 percent instead.

How DSCR lenders calculate the down payment requirement

A DSCR lender looks at the property's annual rental income and divides it by the annual loan payment (principal, interest, taxes, and insurance). If that ratio is 1.25 or higher, the property generates enough income to cover the loan comfortably. Properties with ratios of 1.25 or above often may have access to for lower down payments — sometimes zero. Properties below 1.0 (meaning the building does not generate enough to cover the loan payment) will not may have access to at all, regardless of your personal finances.

The down payment requirement also depends on the loan-to-value ratio, or LTV. This is the loan amount divided by the property's purchase price. A lender offering 90 percent LTV will lend you $180,000 on a $200,000 property, leaving you to put down $20,000. A lender offering 80 percent LTV on the same property lends $160,000 and requires $40,000 down. Lenders with zero-down programs typically cap LTV at 85 percent and require a DSCR of 1.5 or higher.

When you will need to put money down despite strong income

Even if a property generates solid rental income, some lenders require a minimum down payment for risk management. A 10 percent down payment is common as a floor, meaning you cannot go below it even if the property's income would theoretically support a zero-down loan. This protects the lender if the property loses tenants or if the real estate market drops.

You will also need to put down more if the property is in poor condition, has deferred maintenance, or is in a declining neighborhood. Lenders view these as higher-risk situations and offset that risk by requiring more of your own money in the deal. If you are buying a multi-unit building where some units are vacant, the lender will only count the income from occupied units, which may lower your DSCR enough to trigger a higher down payment requirement.

The trade-off between down payment size and interest rate

Putting down more money typically lowers your interest rate on a DSCR loan. A zero-down loan might carry an interest rate 0.5 to 1.5 percentage points higher than a loan where you put down 20 percent. Over a 10-year loan, that difference adds up significantly. On a $200,000 loan, a 1 percent rate difference can cost you $10,000 or more in extra interest.

Before choosing a zero-down option, calculate the total cost of the loan at the higher rate and compare it to putting down 10 or 20 percent at a lower rate. Sometimes putting down more money saves you money overall, especially if you plan to hold the property for many years. A mortgage broker or lender can show you the numbers for your specific situation.

What happens if the property has no rental income yet

If you are buying a property that is vacant or not yet leased, most DSCR lenders will not offer zero-down financing. Instead, you will typically need to put down 20 to 30 percent. Some lenders will finance based on the property's potential income — what it could generate if fully rented — but they explore a discount to that potential income and still require a larger down payment to account for the risk that tenants do not materialize.

A few specialized lenders offer "bank statement" DSCR loans that use your personal income or business income instead of the property's rental history. These are useful if you are buying a property you plan to rent out but it has no tenants yet. However, these loans typically require 20 to 25 percent down and have higher interest rates than property-income-based DSCR loans.

Down payment sources and what lenders accept

DSCR lenders are less strict about where your down payment comes from compared to conventional lenders. Most will accept cash from savings, a gift from a family member, or proceeds from selling another property. Some lenders allow you to use a personal loan or a line of credit to fund the down payment, though this is less common.

You will need to document the source of your down payment funds. If you are using a gift, the lender will ask for a gift letter from the person giving you the money, stating that it is a gift and not a loan you have to repay. If you are using savings, bank statements showing the funds for the past 60 days are typical. Lenders want to confirm the money is yours and that you are not borrowing it from somewhere else.

Frequently Asked Questions

Can I get a DSCR loan with zero down if the property is currently vacant?

Most lenders will not offer zero-down financing on vacant properties. You will typically need 20 to 30 percent down. Some lenders will finance based on potential rental income, but they discount that income and still require a larger down payment to account for the risk that the property does not rent as expected.

What is the lowest down payment I can make on a DSCR loan?

The lowest down payment varies by lender and property. Some lenders offer zero down on properties with strong rental income history and a DSCR of 1.5 or higher. Others set a 10 percent minimum. Most commonly, you will see 10 to 20 percent down required, with better interest rates if you put down more.

Does my personal credit score affect the down payment requirement on a DSCR loan?

DSCR lenders focus on the property's income, not your credit score, so your credit does not directly determine the down payment. However, some lenders do check credit as a secondary factor and may require a higher down payment if your credit is poor, even if the property's income is strong.

If I put down less money, will my interest rate be much higher?

Yes, typically 0.5 to 1.5 percentage points higher for zero-down loans compared to 20 percent down. Over the life of the loan, this can add thousands of dollars in interest. It is worth comparing the total cost of a zero-down loan at a higher rate versus putting down 10 or 20 percent at a lower rate.

Can I use a personal loan to fund my down payment on a DSCR loan?

Some DSCR lenders allow it, but it is less common. You will need to disclose the personal loan to the lender, and it will count as a debt obligation when they calculate your finances. This may affect whether you may have access to or what interest rate you receive.