The Quick Read: Plan for three separate piles of money: your down payment, your closing costs and prepaids, and your reserves. On a purchase, most files across our wholesale network land at 75%–80% LTV (loan-to-value, the loan as a share of the property’s value), so you typically bring 20%–25% down before costs. Reserves then have to stay in the bank after closing, subject to lender guidelines.
- Down payment: typically 20%–25% on a purchase; select high-leverage programs reach 85% LTV (15% down) with roughly a 700+ score.
- Closing costs and prepaids: paid at the table on top of the down payment, and they vary by loan size.
- Reserves: commonly around 6 months of PITIA, held after closing and never counted twice.
- Appraisal: loan size is based on the lower of price or appraised value, so a low appraisal raises the cash you need.
- Final number: the settlement statement from the title company or closing attorney sets what you wire.
Most investors budget for the down payment and stop there. That is how deals die at the finish line. The money you need is bigger than the money you hand over, and part of it never leaves your account.
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As of Oct 29, 2026 · General Freddie Mac market benchmark, not a Lendmire loan offer. Rent, nightly rate, occupancy, taxes, and insurance are editable estimates. Short-term rental figures are estimates only and vary significantly by season, property type, management approach, and local short-term-rental rules — confirm local regulations before relying on them. Qualifying income for short-term rentals varies by program — some use appraisal market rent, others use documented STR history or projections — and is confirmed in underwriting. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
What Are the Three Buckets of Cash?
The three buckets are the down payment, the closing costs with prepaids, and the reserves. The first two are paid at closing. Reserves are different: the lender verifies you still hold them afterward. One dollar cannot sit in two buckets.
Here is how they compare:
| Bucket | When you pay it | Where it goes | Counts toward reserves? |
|---|---|---|---|
| Down payment | At closing | Toward the purchase price | No |
| Closing costs and prepaids | At closing | Lender, title, insurance, escrow | No |
| Reserves | Held after closing | Stays in your account | Yes |
| Earnest money | At contract | Credited at closing | No |
Earnest money is the deposit you put down when the contract is signed. It is not an extra cost. It gets credited against your cash due at the table.
The Cash-to-Close Formula
The formula is simple: down payment, plus closing costs, plus prepaids and escrow deposits, minus credits and deposits already paid. That is your cash to close. Reserves sit outside it as a separate test.
The federal consumer-finance regulator’s closing disclosure explainer lists the same building blocks: points, taxes and government fees, prepaids, the initial escrow payment, and lender and seller credits. That form is built for consumer mortgages, and a business-purpose investor loan often settles on a title-company statement instead. The pieces are the same either way.
Run the numbers on a purchase this way, using ratios instead of dollars. Say you buy a rental at 75% LTV. You bring 25% of the price as your down payment. Closing costs and prepaids come on top of that. Then roughly six months of PITIA must remain in your accounts. PITIA stands for principal, interest, taxes, insurance, and association dues, which together make up the full monthly obligation. Every figure here varies by lender and program: guidelines, property type, leverage, and credit profile all apply.
How Does the LTV Cap Set Your Down Payment?
Your down payment equals the price times one minus the LTV cap. That is the whole calculation. The cap itself moves with credit score, coverage ratio, property type, loan size, and whether it is a purchase or refinance.
Across the network, purchases mostly sit at 75%–80% LTV. Higher leverage tiers exist, and the 85% purchase tier generally asks for a stronger credit profile, around 700 or better. Credit floors start at 620 in parts of the network, though most programs want around 660.
Coverage matters too. DSCR is the debt service coverage ratio: monthly rent divided by the full monthly obligation. A thin ratio can mean a lower LTV, which means more cash down. A stronger ratio can open better leverage and pricing. Coverage of 1.00 is where select programs start. A separate select-lender path goes below 1.00, with leverage and terms adjusted, so expect to bring more cash there.
A bigger down payment does not fix everything. It lowers the payment and can lift your coverage ratio. It never erases credit floors, reserve rules, or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage.
What Are Closing Costs and Prepaids?
Closing costs are the fees to create the loan and transfer the property. Prepaids are your own money moving into insurance and escrow accounts. Both are due at the table, and both are often left out of rough budgets.
Typical line items include:
- Lender and processing fees
- Appraisal
- Title and settlement fees
- Recording and transfer charges
- First-year landlord insurance
- Prepaid interest, the daily interest between closing and your first payment period
- Initial escrow deposits for taxes and insurance, where the loan requires an escrow account
The CFPB’s guidance on the initial escrow deposit explains that this deposit starts the account and can differ from the regular monthly escrow amount. Budget for it separately.
Points are optional. Each one changes cash to close dollar for dollar. If you plan to sell or refinance soon, points rarely earn their keep.
Loan size matters a lot here. Fixed-dollar fees such as appraisal, title, and processing hit small balances harder as a percentage. A lender reporting closing costs of 2%–5% of the loan is describing a market-wide range, not a promise. Your own quote will vary, and the final settlement statement is the number that counts.
How Do Reserves Work?
Reserves are liquid funds you still hold after the down payment and closing costs are paid. They typically run around 6 months of PITIA across the network. Conservative rate-and-term files at modest leverage under $1,500,000 can see reserves waived. Loans above that size generally step up to about 9 months.
The requirement flexes with lender, leverage, loan size, and transaction type. Cash-out files, thinner coverage, larger loans, short-term rentals, and multi-property borrowers often draw heavier reserve asks. Treat 6 months as a planning figure, not a universal rule.
What counts matters as much as how much. Lenders look at account history and ask about recent large deposits. Retirement accounts and brokerage balances are often counted at a discount or not at all, depending on the program. An unsold stock position is not cash. Funds you already committed to closing cannot be counted as reserves too.
Where Can the Cash Come From?
Your own seasoned savings are the cleanest source. Other sources are program-specific, so ask before you rely on them.
| Source | General treatment |
|---|---|
| Savings and checking | Cleanest source; documented with statements |
| Cash-out proceeds from another property | Can fund a down payment if documented |
| Gift funds | Program-specific; gifts generally cannot cover reserves |
| Borrowed down payment | Generally not allowed |
| Seller credits | Typically offset closing costs, not equity |
| Retirement and brokerage | Often discounted or excluded |
Seller credits are a common misunderstanding. They generally reduce closing costs, not the equity you owe. The same logic applies to the idea of a no-money-down purchase. Low cash to close usually means seller credits, equity recycled from another property, or partner capital. A true purchase loan still needs equity.
What Can Change Your Number?
Five things move the total most: appraisal results, points, credits, loan size, and property type.
Appraisal shortfall. If the appraisal comes in under your contract price, the loan shrinks and you cover the gap. Hold a buffer on top of your estimate. Lendmire’s piece How Much More Cash You Bring When a DSCR Appraisal Falls Short walks through that math.
Short-term rentals. STR purchases go up to 75% LTV, so the minimum down payment is larger than on many standard rentals. Expect a 640+ score and about 12 months of hosting history. Refinances sit lower, and cash-out tops out at 70% on STR collateral, against 75% on standard rentals. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Large loans. Above $1,500,000, reserves step up. Above $2,500,000, the network generally holds to 30-year fixed structures.
Entity costs. If you close in an LLC, setup and formation costs are your cash too, subject to lender program eligibility.
Ineligible properties. Manufactured homes, log homes, and barndominiums are not offered through these programs, so no amount of cash changes that.
DSCR vs. conventional financing
There are two common ways to finance an investment property, and they qualify you differently — here’s how investors weigh them.
Why investors choose it
- Qualifies on the property’s rental income — no personal tax returns, W-2s, or pay stubs needed to document income.
- No personal debt-to-income ceiling to clear, so existing mortgages and obligations don’t cap your borrowing the same way.
- Can be closed in an LLC, keeping the property inside a business entity.
- Built for scaling — not held to the limit on number of financed properties that conventional financing applies.
- Underwriting centers on the deal: generally qualifies when the rent covers the payment, a 1.00x coverage ratio being a common baseline (confirmed in underwriting).
- Designed specifically for investment property, including long-term and, where the program allows, short-term rentals.
Where it’s strong
- Often the lowest ongoing financing cost for a buyer who fully qualifies on personal income — a fit for a first property or a cost-first purchase.
Trade-offs for investors
- Requires full personal income documentation and must fit within a debt-to-income limit — salary, existing debts, and other mortgages all count.
- Typically held in your personal name rather than a business entity.
- Caps how many financed properties you can carry, which can become a ceiling as a portfolio grows.
- Evaluates you as a borrower as much as the property, which usually means more paperwork.
How investors usually choose: a first or single property often optimizes for the lowest financing cost; portfolio builders often optimize for leverage, vesting in an LLC, and scaling past conventional caps. The right answer depends on your goals, the property, and current guidelines — both paths run through select lenders in Lendmire’s wholesale network, with eligibility and terms confirmed in underwriting.
Purchase vs. Refinance vs. Cash-Out
Purchases demand the most up-front cash. Refinances can need little or even produce cash. A cash-out refinance tops out around 75% LTV on standard rentals across most of the network, with about 6 months of seasoning as the common expectation. Seasoning is the waiting period after you buy before a lender will lend against the new value. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
On a cash-out, closing costs come out of your proceeds. If the payoff plus costs eats more than the new loan provides, you could owe cash at the table.
Key Terms Defined
LTV (loan-to-value): The loan amount as a percentage of the property’s price or appraised value, whichever is lower.
PITIA: Principal, interest, taxes, insurance, and association dues, the full monthly obligation used in coverage and reserve math.
DSCR: Monthly rent divided by PITIA. It measures whether the property’s rent covers its own payment. Clearing 1.00 does not mean positive cash flow, since repairs, vacancy, management, and capex sit outside the calculation.
Prepaids: Costs paid in advance at closing, such as first-year insurance, prepaid interest, and escrow deposits.
Reserves: Liquid funds you hold after closing, measured in months of PITIA.
Seasoning: The waiting period before a lender will refinance against a property or count funds as your own.
Why Doesn’t the Three-Day Disclosure Rule Apply?
DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. In practice, the federal rule that gives consumers a three-business-day look at final figures generally does not apply. Compliance Alliance explains how the purpose-of-loan test works under Regulation Z, and Cornell’s Legal Information Institute publishes the companion settlement-law coverage rule, which likewise carves out business-purpose loans. Your final figure may arrive from the title company or closing attorney. Ask for it early and confirm the wire amount directly.
Mistakes That Stop Closings
- Budgeting only the down payment, then arriving without verified reserves.
- Counting the same dollars as both closing funds and reserves.
- Moving large sums between accounts without a paper trail.
- Assuming a seller credit lowers the down payment.
- Ignoring prepaids and escrow deposits.
- Skipping an appraisal buffer.
Our complete DSCR loans guide covers the full qualification picture if you want to size the whole deal, not just the cash.
Build Your Own Number
Work through it in order. Write down your target price and the LTV tier you expect. Multiply out your down payment from the remaining percentage. Add a closing-cost and prepaid estimate from your quote. Add your PITIA times six. Then add a cushion for the appraisal and any entity costs. If your liquid, documented funds clear the total, you are ready. If not, the gap tells you whether to wait, shrink the deal, or add a partner.
Tax treatment varies; consult a qualified professional.
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals.
Frequently Asked Questions
Can I close a DSCR purchase with no money down?
Rarely. A purchase loan needs equity, and most files require 20%–25% down. Programs advertised as low cash to close usually rely on seller credits, equity from another property, or partner capital. Eligibility review depends on lender guidelines, credit, and the property.
Do reserves count as cash to close?
No. Reserves are funds you still hold after closing. Money used for the down payment or closing costs cannot be counted again. Plan reserves of roughly 6 months of PITIA as a separate pile, subject to lender guidelines.
What happens if the appraisal comes in low?
The loan is sized on the lower of price or appraised value. A low appraisal shrinks the loan, so you bring more cash or renegotiate the price. Holding an extra buffer protects you.
Can I use gift funds or borrowed money for the down payment?
Gifts are allowed under some programs, usually with a gift letter and a minimum contribution from your own funds. Gifts generally cannot cover reserves. Borrowed down payments are generally not allowed.
Does a larger down payment lower my cash needs elsewhere?
No, it raises total cash at closing. It can lower the monthly payment and lift your coverage ratio, which may help pricing and leverage. It does not remove credit, reserve, or property eligibility rules.
About Lendmire
A non-QM mortgage broker (NMLS# 2371349), Lendmire arranges DSCR financing for real estate investors in 41 markets, 40 states plus Washington, D.C. Because deals are underwritten primarily on property cash flow rather than personal income documentation, the structure suits self-employed buyers and entity-owned portfolios. Lendmire places loans through wholesale investor lenders; it is not a direct lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. CFPB – Closing Disclosure explainer
2. CFPB – Initial escrow deposit and prepaid interest
3. Compliance Alliance – Reg Z and Investment Properties
4. Cornell LII – 12 CFR 1024.5
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Much a DSCR Loan Lends After a Completed Mortgage Modification · How Much a DSCR Loan Lends on a Rent-by-Room Property · How Much a DSCR Loan Lends After a Low Appraisal on a Cash Buy
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.