Down Payment for DSCR Loans
Down Payment for DSCR Loans
Down Payment for DSCR Loans is tied directly to the maximum permitted LTV (Loan-to-Value) ratio. DSCR loans typically require a down payment ranging between 20% and 40%.
A. Typical Minimums
- General Down Payment: The down payment needed usually falls between 20% and 30%.
- Absolute Minimum Down Payment: While a down payment of 20% is often required for an investment property loan, some lenders will allow for as little as 15% down.
- Minimum Loan Amount: DSCR loan amounts typically range from a minimum of 100,000??uptohighlimitslike??20,000,000.
B. Maximum Down Payment/Lower LTV Trend
We focus on borrowers with lower LTV ratios to balance the risks associated with alternative documentation. DSCR loans generally require large down payments, typically between 20% and 40%.
Down Payment Tiering Based on DSCR Ratio (Risk)
The ratio of the property’s gross rental income to its debt obligations (PITIA) is the single most important factor determining the required down payment.
A. Positive Cash Flow (DSCR ?1.00)
Borrowers who demonstrate that the property generates sufficient income to cover the mortgage payment (DSCR ?1.00) qualify for the lowest down payment requirements (highest LTVs):
- 15% Down (85% LTV): Investors with excellent credit (typically a 740+ FICO) and a DSCR of 1.00 or higher on loan sizes up to $1,000,000 may qualify for a 15% minimum down payment.
- 20% Down (80% LTV): Loans that are DSCR ?1.00 often permit LTVs of 80%.
B. Negative Cash Flow (DSCR < 1.00 or “No Ratio”)
When the rental income does not fully cover the debt (DSCR < 1.00), the risk is higher, necessitating a larger down payment.
- 25% Down (75% LTV): A DSCR loan that is less than 1.00 (but still typically meets a minimum floor like 0.75x) often requires a 25% minimum down payment (Max 75% LTV).
- 30% Down (70% LTV): On loans up to $1,000,000 with a lower DSCR ratio (e.g., 0.80x to 0.99x), the LTV may be restricted to 70%, requiring a 30% down payment.
- DSCR No Ratio Loans: We offer DSCR No Ratio Loans up to 75% LTV (25% down payment) for loan amounts up to $1,000,000 with a minimum 700+ FICO score.
Down Payment Based on Transaction Type and Borrower Overlays
Down payment requirements are stricter for riskier transaction types or specific borrower profiles.
Scenario/Factor | Maximum LTV | Minimum Down Payment |
Purchase (DSCR ?1.0) | Max 85% LTV | 15% |
Cash-Out Refinance (General) | Max 75% LTV | 25% |
Cash-Out Refinance (Max Cash) | Max 60% LTV | 40% |
Short-Term Rental (STR) Income | Max 75% LTV | 25% |
STR Income (River Series) | Max 60% LTV | 40% |
Non-Permanent Resident Alien | Max 75% LTV | 25% |
- Cash-Out Refinance: While a DSCR cash-out refinance allows investors to leverage equity, the maximum LTV is typically reduced. For example, the LTV may be capped at 75% for Cash-Out Refinances on loans ?$1,000,000 where DSCR ?1.00. If the LTV is ?60%, the borrower may access unlimited cash-out funds.
Source of Down Payment Funds
The source of the down payment funds is heavily scrutinized by SSF.
- Borrower Funds Requirement: On purchase transactions, borrowers must make the down payment with funds from their own resources. In the Prime Non-QM Series, a minimum of 3% of the purchase price must come from the Borrower’s own funds.
- Gift Funds: Gift funds can be used for down payment or closing costs. However, for investment properties, gift funds are only acceptable if the borrower has already contributed a 10% down payment from their own funds.
- Interested Party Contributions (IPC): Seller or interested party contributions may be used for closing costs and prepaid expenses, but for Investor Cash Flow (DSCR) products, the maximum IPC is limited to 3% across all LTVs.
- Business Funds: Funds from a business account are Allowed for down payment, closing costs, and reserves for Express DSCR/DSCR loans, provided the borrower documents their ownership of the company.
- Ineligible Funds: Funds that must be repaid in full or in part (borrowed funds), cash-on-hand, or “sweat equity” (labor/materials provided by the borrower) are unacceptable funds for the down payment.
FAQ's
NPRAs are commonly restricted to a Max 75% LTV on DSCR products, implying a 25% minimum down payment.
On purchase transactions, a minimum of 3% of the purchase price must come from the borrower’s own funds.
Foreign National borrowers are subject to stricter LTV restrictions, often capped at a Max 70% LTV, requiring a 30% minimum down payment.
Yes, but gift funds are acceptable only if a 10% down payment has already been contributed by the borrower from their own funds.
Loans with negative cash flow often restrict the loan to a maximum of 75% LTV (requiring a 25% down payment), or sometimes lower LTVs.
A DSCR ratio of less than 1.0 indicates increased lender risk and typically requires a larger down payment.
A positive DSCR (e.g., DSCR ≥ 1.1) allows for the highest LTV ratios, often up to 80% (requiring 20% down payment) on loan amounts up to $1,000,000.
For DSCR loans with only 15% down (85% LTV) for loan amounts up to $1,000,000, the borrower generally needs an excellent credit score, such as 740+.
While 20% is common, some lenders may allow for as little as 15% down for DSCR loans.
DSCR loans generally require a large down payment that typically falls between 20% and 40%. Most DSCR loans require a down payment of at least 20 to 25 percent.
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