Does a DSCR Loan Require a Down Payment?
What is the down payment requirement for DSCR loans? What does refinancing look like with this type of loan?
Down Payments for Different Types of Properties
Your typical DSCR loan will require 20% down, but as interest rates are rising, you may see that that tighten up to 25%. So, if you’re buying a $100,000 property, they’ll loan you 80%, or $80,000. But you’ll have to come up with the remaining $20,000.
If you go from a single-family to a four-plex (some DSCR loans work for up to six-plexes!), you may be required to put in more like 25-30%. As your “doors” go up, so does your down payment.
But always check around! DSCR loans are the wild west. You’ll have lots of choices, every lender likes having slightly different requirements.
Refinancing with a DSCR Loan
For a rate and term refinance, a DSCR loan will typically cover 75%.
So you’ll need 25% equity in the property on a DSCR loan to do rate and term.
Cash out refinancing is a little tighter. Most are at 70%, but you could find outliers between 65 and 80% (but the higher ones will raise your interest 2 or 3 points).
For true, good DSCR loans, you’ll be maxed out at 75% for rate and term, 70% for cash out.
Let’s say you’re looking at a property that’s worth $100,000. On the cash out, you can only get $70,000, and you’ll need $30,000 in equity. For rate and term, the max loaned is $75,000.
At the end of the day, it’s impossible to give a one-size-fits-all answer about DSCR loan amounts. There are so many options, and your properties will each require different loans. You’ll have to talk to brokers and lenders in your area to find the best rates for you.
Using DSCR with BRRRR
If you’re lucky, the rental property you’re getting into is a BRRRR property. You can use a DSCR loan like any other traditional conventional loan to refinance.
If you buy the property at 75% or below its ARV, you can use a DSCR loan and buy a rental property with zero money down.
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