The Quick Read: Plan for three separate piles of money: your down payment, the closing costs and prepaid items that come due at the table, and reserves that must stay verified in your accounts after closing as proof you can carry the property.
- Down payment is set by leverage. On an investment-property purchase, most files land at 75%-80% LTV, which means 20%-25% down.
- Closing costs and prepaids are a separate bucket. They sit on top of the down payment, not inside it.
- Reserves are commonly around 6 months of PITIA (the full monthly payment: principal, interest, taxes, insurance, and association dues), subject to lender guidelines.
- Earnest money and seller credits reduce the wire. They do not shrink reserves.
- Rent decides how large a loan the property supports. Cash decides whether you can close on that loan.
A lot of first-time DSCR investors budget for the down payment and stop there. That is the most common planning gap we see across files placed with the network’s lenders. This article walks through every dollar bucket, how underwriting treats each one, and where the general rules bend.
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Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 29, 2026
Prefilled with starting assumptions — enter your own rent or nightly figures, taxes, insurance, and HOA for a more accurate picture.
Program parameters update from Lendmire’s centralized guideline source. Taxes and insurance are editable estimates.
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 Counts as Cash to Close?
Cash to close is the amount you send at closing after credits and deposits are subtracted. It is not the same as your down payment, and it is not the same as your closing costs. It is built from both.
Here is the formula in plain terms:
- Down payment
- plus closing costs
- plus prepaids and initial escrow deposits
- minus earnest money already paid
- minus seller credits and similar adjustments
- equals cash to close.
Reserves are verified on top of that number. They are not part of it.
A quick reference separates the four terms people mix up:
| Term | Paid at closing? | Kept afterward? |
|---|---|---|
| Down payment | Yes | No, it becomes equity |
| Closing costs | Yes | No |
| Prepaids and escrows | Yes | Held for taxes and insurance |
| Reserves | No | Yes, verified in your accounts |
One point trips up many buyers. Funds committed to the down payment and closing costs cannot also count as reserves. On the files we place, the lender looks at what remains after those are paid. The same dollar cannot do two jobs.
How Underwriting Builds Your Number, Step by Step
Underwriting builds the number in a fixed order. Knowing the order helps you spot where your own estimate is thin.
Step 1: The loan amount is set. The lender applies a maximum LTV (loan-to-value, the loan as a percentage of the property’s value) to the lower of the purchase price or the appraised value. Your down payment is the gap between the price and the loan the lender will make. A low appraisal either raises the cash you owe or shrinks the loan.
Step 2: The rent test is run. DSCR (debt service coverage ratio) compares the property’s monthly rent to its monthly PITIA. Many select programs start at 1.00. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. Stronger ratios tend to open better pricing and leverage.
Closing costs do not enter this ratio. Rent sets the size of the loan. Cash determines whether you can close on it.
Step 3: Costs and prepaids are added. These usually include lender fees, an appraisal that includes a rent analysis, title and escrow charges, recording fees, and transfer charges that are sometimes split with the seller. They also include prepaid interest and the first deposits for taxes and insurance. Insurance is the one that surprises people, because a full policy premium often comes due up front.
Step 4: Credits are subtracted. Earnest money you already paid reduces the wire. So do seller credits. A seller credit can generally offset closing costs, but it generally cannot be counted toward the down payment or reserves.
Step 5: Reserves are verified. Lenders ask for recent bank or brokerage statements showing liquid funds beyond what you are spending at closing.
Step 6: The final figure appears. The exact number settles on the final settlement statement. Early estimates are just that. Ask for the estimate in writing and read it line by line.
How Leverage Changes the Down Payment
Down payment is a function of leverage, and leverage is a function of your credit profile and the deal. On a purchase of an investment property, the network’s programs typically run 75%-80% LTV. Select high-leverage programs reach 85% LTV, which means 15% down, generally with a score around 700 or higher.
| Purchase LTV (investment property) | Down payment | Typical fit |
|---|---|---|
| 75% | 25% | Most programs, broadest eligibility |
| 80% | 20% | Stronger credit and coverage |
| 85% (select programs) | 15% | Roughly 700+ score, select lenders |
Credit sits underneath all of this. A 620 floor exists in parts of the network, most programs want around 660, and 700+ unlocks the strongest leverage tiers. All of it is subject to lender guidelines and property review.
A bigger down payment can help in two ways. It lowers the monthly payment, which can lift the DSCR. It also gives the lender more equity cushion. But it never erases leverage caps, credit floors, reserve rules, or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage.
Also keep this in mind: clearing 1.00 does not mean the property produces positive cash flow. The ratio compares rent to PITIA only. Repairs, vacancy, management, utilities, and capital expenses sit outside the calculation, so your own cash plan needs room for them.
Reserves: The Money You Show but Don’t Spend
Reserves are liquid assets you hold after closing, measured in months of PITIA. They exist because lenders want proof that you can keep paying if a unit sits empty or a roof fails.
Across the network, reserves vary by lender, leverage, loan size, and transaction type. Commonly the ask is around 6 months of PITIA. Conservative rate-and-term refinance files at modest leverage under $1,500,000 can see reserves waived on some programs. Loans above that size typically step up to about 9 months. Never treat one number as universal for your file.
A few practical rules apply on most files:
- Statements matter even without personal income documents. DSCR loans qualify primarily on property-level rental income covering the payment, subject to lender guidelines. Asset statements are still required.
- Cash in the bank counts fully. Retirement and brokerage accounts are often counted at a discount, because a lender allows for taxes and market swings.
- Some assets do not count. Many lenders will not accept crypto for reserves.
- Large recent deposits draw questions. Expect to explain and document where any big deposit came from.
- Reserves can stack. If you own several financed rentals, per-property reserve requirements can add up across the portfolio, depending on the program.
Three Worked Examples, in Percentages
These examples use percentages and ratios, with dollar figures only where a loan-size threshold matters. Closing costs and prepaids vary by property, location, and lender, so they appear as a separate line without a number. Treat the inputs as modeled assumptions, not market facts. A calculator on the site can show an illustrative estimate once you enter your own figures.
Example 1: Standard single-family purchase
| Line | What it looks like |
|---|---|
| Leverage | 75% LTV on an investment-property purchase |
| Down payment | 25% of the price |
| Closing costs and prepaids | Added on top, varies by deal |
| Reserves | About 6 months of PITIA, held and verified |
| Coverage | Rent comfortably covers PITIA, about 1.2x |
Wired at closing: down payment plus costs and prepaids, less earnest money and credits. Total liquidity to show: that wire plus the reserves.
Example 2: Higher-balance purchase
Say you buy a small multifamily and the loan runs above $1,500,000. Leverage may still sit at 75%-80% on a purchase. The down payment percentage looks the same as Example 1, but it applies to a bigger price, and the reserve ask typically steps up toward 9 months of PITIA. Loans above $2,500,000 generally hold to 30-year fixed structures, so you have fewer ways to shape the payment. This is the file where reserves quietly become the biggest surprise.
Example 3: Cash-out refinance
| Line | What it looks like |
|---|---|
| Leverage | Tops out around 75% LTV on a cash-out of a standard rental |
| Down payment | None, because you already own the property |
| Cash to close | Payoff plus costs, less proceeds |
| Seasoning | About 6 months is the common expectation |
On a refinance, proceeds can exceed costs. That means cash to close can be zero or even negative, and cash comes back to you. Reserves may still be tested.
Where the General Rule Bends
Here are the named edge cases where the general stack changes.
Business-purpose paperwork. 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. They are exempt from the consumer-mortgage disclosure forms, as the FDIC Consumer Compliance Manual describes for business-purpose credit. That does not leave you without numbers. The consumer-finance agency’s definition of estimated cash to close is a good mental model: down payment plus closing costs, minus deposits and credits. Ask for a written cash-to-close estimate and compare it with that logic.
Low appraisal. The loan is based on the lower of price or value. If the appraisal comes in under the price, either you bring more cash or you renegotiate. Reserves do not shrink to compensate.
Thin coverage. When rent covers the payment only narrowly, lenders can respond with lower leverage, more reserves, or both. Either one means more cash from you. A below-1.00 file through a select lender follows the same pattern, with leverage and terms adjusted.
Seller credits. They can reduce the wire, but they do not count as your down payment or as reserves. Cap and eligibility rules vary by program.
Borrowed funds. Most programs want the down payment to come from your own documented funds. Some investors source cash by refinancing another rental first, which brings its own seasoning and paperwork. Plan that step before you go under contract.
Entity buyers. If you close in an LLC, the entity takes title, subject to program terms, and the funds still have to be documented. Reserves must be traceable to you or the entity, depending on the program.
Smaller loans. Fees do not always shrink with the loan balance, so a smaller loan can carry a proportionally heavier cost load. Padded fee estimates and split transfer charges can also move your number.
Property type. Manufactured homes (single- and double-wide), log homes, and barndominiums are not offered in the network’s DSCR 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.
How to Lower the Cash You Bring (and What It Costs You)
Every lever has a trade-off. Here is where we see investors pull them.
| Lever | What it does | The trade-off |
|---|---|---|
| Negotiate seller credits | Offsets closing costs | May cost you on price |
| Higher LTV (where eligible) | Lowers the down payment | Larger loan, thinner cushion |
| Cash-out on a seasoned rental | Funds your next down payment | Adds debt to the first property |
| Buy below the supported value | Builds instant equity | Takes time and good sourcing |
| Adjust loan structure | Can shift upfront costs | May change terms, such as prepayment |
A more affordable lever is often the least glamorous one: ask early. If you know your seller will give a credit, build it into the offer.
Common Mistakes That Cost Deals
- Budgeting only the down payment. The prepaids and escrow deposits show up later as a surprise.
- Treating reserves as part of the down payment. They are separate funds, and one dollar cannot count twice.
- Assuming no personal income documents means no asset documents. Statements are still required.
- Expecting zero down. Buyers generally bring their own equity.
- Counting rent coverage as cash flow. Clearing the DSCR test does not mean the property pays you after repairs, vacancy, and management.
- Trusting an early estimate as final. The settlement statement is the number that matters.
- Moving money around right before closing. Big transfers invite questions and slow underwriting.
A Pre-Closing Worksheet
Fill these in on paper before you make an offer:
1. Target purchase price and the LTV you expect (75%, 80%, or 85% where eligible).
2. Down payment in percent, then converted to dollars on the calculator.
3. Written estimate of closing costs, prepaids, and escrow deposits.
4. Earnest money paid and any credits you have negotiated.
5. Reserve months required for your loan size, in months of PITIA.
6. Where each pile of money sits today, and whether statements show it.
7. A cushion for repairs and vacancy, because the DSCR ratio ignores them.
If your liquid funds cover the first six items and the cushion, you are in good shape. If they do not, adjust the price target before you adjust the paperwork. Lendmire’s complete DSCR loans guide covers the rest of the program picture.
Key Terms Defined
Cash to close: The amount you send at closing after credits and deposits are subtracted from your down payment, closing costs, and prepaids.
Prepaids: Costs paid in advance at closing, such as prepaid interest and the first deposits toward property taxes and insurance.
Reserves: Liquid assets you must hold and document after closing, measured in months of PITIA.
PITIA: Principal, interest, taxes, insurance, and association dues, which together make up the full monthly payment the DSCR ratio tests.
LTV: Loan-to-value, the loan amount as a percentage of the lower of price or appraised value.
Seasoning: The waiting period a lender expects between buying a property and refinancing it, commonly about 6 months for a cash-out.
Frequently Asked Questions
How much cash do I need to close on a DSCR loan?
Add three things: your down payment (typically 20%-25% on an investment purchase), closing costs and prepaids, and reserves held after closing. Subtract earnest money and credits from the down payment and closing costs to get the wire. Reserves are verified separately, commonly around 6 months of PITIA. Exact figures depend on the lender, property, and loan size.
Do closing costs lower my DSCR?
No. The ratio compares rent to PITIA, and closing costs are not part of either. They affect how much cash you bring. If you finance costs into the loan, the larger loan counts against your leverage cap.
Can I use seller credits for my reserves or down payment?
Generally no. A seller credit can offset closing costs, but it usually cannot count toward the down payment or reserves. Rules vary by program, so confirm before you negotiate.
Is a zero-down DSCR purchase common?
No. Most programs require you to bring your own equity, and even the highest-leverage select programs run around 15% down with a stronger credit profile. Whatever the program, you still need reserves.
What changes on a refinance?
There is no down payment. Cash to close is the payoff plus costs, less any cash-out proceeds, so on a cash-out the number can be zero or negative. Cash-out tops out around 75% LTV on a standard rental across most of the network. Reserves may still apply.
Next Step
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. As a broker, Lendmire arranges DSCR financing through select lenders in its wholesale network across 41 markets, including Washington, D.C. Every file is underwritten individually, and nothing here is a commitment to lend. You can reach the team at 828-256-2183 or request a quote.
For current guidelines and terms, see Lendmire’s DSCR loan programs page.
About Lendmire
As a non-QM mortgage broker (NMLS# 2371349), Lendmire facilitates DSCR investor loans across 41 markets, including Washington, D.C. DSCR eligibility is generally reviewed around property-level rental income instead of personal income documentation, subject to lender guidelines, serving LLC-structured portfolios and self-employed borrowers who don’t fit conventional boxes. A two-time Scotsman Guide Top Mortgage Workplace (2025, 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. FDIC Consumer Compliance Manual, Truth in Lending Act
2. CFPB Loan Estimate Explainer
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 Shrinks When Airdna Drops After Your Offer · How Much a DSCR Loan Lends After a Completed Mortgage Modification · 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.