Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
The Quick Read: Putting 20% down (80% LTV) leaves you more cash for the next deal, while putting 25% down (75% LTV) shrinks the loan by about 6%, lifts your rent coverage a few points, and fits files that many programs will only take at the lower leverage tier. LTV, or loan-to-value, is the loan as a share of the purchase price. DSCR, or debt service coverage ratio, is the property’s monthly rent divided by its monthly PITIA (principal, interest, taxes, insurance, and association dues). Neither tier is the right answer in the abstract. Your credit, the property, and the rent decide which one you can use. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
- Most purchases land at 75%–80% LTV. That means 20%–25% down on typical files, subject to lender guidelines.
- The extra 5% is about one-quarter more cash up front. Going from 20% to 25% down raises your cash in by 25%.
- A bigger down payment helps the ratio but cannot rescue everything. It does not erase credit floors, reserve rules, or property eligibility.
- Some files have no choice. Thin coverage, short-term rentals, and certain property types often push you to the lower leverage tier.
DSCR Calculator
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Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 15, 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 15, 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.
Here is the honest answer. Choose 20% down when the file is strong and you want to keep capital working elsewhere. Choose 25% down when the rent is thin against the payment, when the program caps leverage at 75% anyway, or when you want more cushion. Many investors get this wrong by treating the choice as a preference. On a lot of files, the property makes the call for you. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Side-by-Side
The two tiers run on the same qualification logic. The differences show up in leverage, cushion, and how many files fit. This table reflects typical ranges across the wholesale network Lendmire places files with. Programs change, and every file is underwritten individually.
| Factor | 20% Down (80% LTV) | 25% Down (75% LTV) |
|---|---|---|
| Review basis | Property rent vs. PITIA | Property rent vs. PITIA |
| Personal income docs | Generally not the focus | Generally not the focus |
| Typical borrower profile | Stronger credit, coverage at or above 1.00 | Wider range, including thinner coverage |
| Coverage effect | Larger loan, lower ratio | Smaller loan, higher ratio |
| Property types | Standard rentals; some types capped lower | Fits more property types and structures |
| Entity vesting | Individual or LLC, per program terms | Individual or LLC, per program terms |
| Reserves | Often around 6 months of PITIA | Often around 6 months of PITIA |
| Cash up front | Baseline | About 25% more down payment |
Manufactured homes (single- and double-wide), log homes, and barndominiums are not offered in either column. The network does not place DSCR loans on them.
What Does the Extra 5% Actually Change?
Five more points down changes four things: the loan size, the ratio, the cash you need, and the number of programs that will take the file. Everything else stays the same. Down payment is just 100% minus LTV, so 20% down is 80% LTV and 25% down is 75% LTV. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Loan size. On the same purchase price, the 75% loan is 6.25% smaller than the 80% loan. That is about one-sixteenth.
Coverage. A smaller loan means a smaller monthly payment, which lifts the DSCR. But taxes, insurance, and association dues do not shrink when you put more down. Only the principal-and-interest slice does. Run the numbers on a modeled file sitting right at 1.00x at 80% LTV. The same rent at 75% LTV lands roughly 0.03 to 0.06 higher, depending on how much of the payment is taxes and insurance. That is a few points of cushion, not a transformation. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Cash. The extra equity comes out of your pocket. Most programs want the down payment to come from your own sourced funds. A second loan at closing to cover it is generally not accepted, because lenders want your capital in the deal. If you are weighing a home-equity line for this, see Lendmire’s piece HELOC Down Payment vs Cash Purchase When You Have a Low First Mortgage.
Program reach. More equity widens the set of lenders and structures that will look at the file. It does not guarantee approval. Credit floors, reserves, and property review still apply.
A quick word on the neighbors of this choice. Select high-leverage purchase programs reach 85% LTV (15% down), typically for borrowers around 700 or better. They are the exception, and they are narrower on property type and coverage. Most buyers choose between 80% and 75%.
When Is 25% Required Rather Than Chosen?
On many files, 25% down is the tier you are given, not the one you pick. The usual triggers are thin rental coverage, a short-term-rental purchase, and property type. Knowing which one applies tells you whether you are choosing at all. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Thin coverage. Many select programs start at a 1.00 DSCR. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. In practice, that adjustment usually means a lower LTV and more down payment. If rent does not cover the full PITIA, expect 25% down or more to be on the table.
Short-term rentals. A purchase of a property underwritten on short-term-rental income tops out at 75% LTV. That makes 25% down the working minimum. These files also typically want a 640 or better score, about 12 months of hosting history, and a 1.00 coverage floor on purchases. Short-term rental rules can vary by city, county, HOA, and property type, so investors should confirm local rules before relying on projected rental income. For the full breakdown, read Lendmire’s piece Short-Term Rental DSCR Down Payment Rules on a Purchase vs Cash-Out.
Property type. Small multifamily and condos, including non-warrantable condos, often sit at tighter leverage on some programs. Scotsman Guide notes that non-warrantable condos often have to go to DSCR lenders in the first place, since they fall outside agency rules. Eligibility varies by lender.
Credit. The 620 floor exists in parts of the network, and most programs want around 660. The strongest leverage tiers want 700 or better. A lower score can mean less leverage even when the property is solid.
When 20% Down Is the Better Fit
Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Twenty percent down is the better fit when your file is strong enough to qualify at 80% LTV and your capital has better uses elsewhere. The case is about efficiency, not bargain-hunting. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Picture an investor with a score in the 700s, a standard single-family rental, and rent that clears 1.00x with room to spare. At 80% LTV the file is reviewed on its own merits. Putting 25% down would add only a few points to a ratio that already works. That extra cash could fund the next down payment, cover renovation, or sit as reserves. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Portfolio builders have a structural reason to lean this way. Scotsman Guide describes DSCR loans as qualifying on the property’s projected cash flow rather than the borrower’s income, and as not tied to the agency cap on the number of financed properties. When each loan is judged on its own rent, spreading cash across more purchases at 20% down can scale faster than concentrating it in fewer, larger down payments.
The 20% tier also suits borrowers who want to keep their liquid reserves intact. Reserves sit apart from the down payment. They are liquid cash left over after you fund the down payment and closing costs, commonly around 6 months of PITIA. On conservative rate-and-term files at modest leverage under $1,500,000, reserves can be waived. Above that loan size, they typically step up to about 9 months.
This tier has limits. A 20% file has a larger loan against the same rent, so the coverage cushion is thinner. If rent softens or taxes and insurance climb, there is less room before the ratio falls under the line.
When 25% Down Is the Better Fit
Twenty-five percent down is the better fit when the ratio is borderline, when the program caps leverage at 75% anyway, or when you want a thicker buffer against a bad year.
Say you are looking at a duplex where rent comes in just under break-even at 80% LTV. The same property at 75% LTV may clear 1.00x, or move from deeply sub-1.00 to something a lender can look at on more favorable terms. This is the rescue scenario. The extra equity buys qualification rather than just comfort.
The buffer matters beyond the application. DSCR compares rent to PITIA only. Clearing 1.00 is not the same as positive cash flow, because repairs, vacancy, management, utilities, and capex all sit outside the calculation. A smaller loan gives you more room to absorb those costs. A Yahoo Finance and Business Insider piece urges investors to stress-test with conservative assumptions on insurance, maintenance, and vacancy. A 25% down payment makes that stress test easier to pass.
The stronger play might be 25% when the property is one you plan to hold for a long time. Lower leverage also leaves more room for a later refinance. The counter-argument is real, though. That extra 5% could have been a down payment on a second property. This one is a genuine tradeoff, and it turns on what else you would do with the cash.
Some borrowers have weaker credit, a loan size near the top of the range, or a property type that programs cap. For them, 25% down is not a luxury. It is the structure that gets the file considered.
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 the Appraisal Affects Both Tiers
The appraisal does two jobs, and both feed the leverage tier you end up in. It sets the property’s value, which fixes LTV. It also sets the market rent through a rent schedule, which fixes the numerator of your DSCR. Appraisers typically report this on Fannie Mae’s form 1007 for single-family rent schedules and form 1025 for small residential income properties. DSCR loans are not agency loans. Those forms are simply the standard reporting format.
Two practical consequences follow.
The lease does not always set your ratio. A strong lease on a property that appraises light on rent may not carry the file.
A low appraisal raises your real down payment. If value comes in under the contract price, the loan is sized to the lower figure and you fund the gap. At 20% down, an appraisal shortfall pushes your true down payment above 20% of the contract price. Plan for that cash before you commit.
What Stays the Same at Either Tier
Many people assume the 25% file is a different kind of loan. It isn’t. The documents are the same in both cases: government ID, credit authorization, purchase agreement, appraisal with rent schedule, proof of funds and reserves, and an insurance quote. Entity documents are added if you close in an LLC.
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. A DSCR loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. It still reviews credit, assets, reserves, the property, and title.
Either tier can close in an LLC, subject to lender program eligibility. A personal guarantee is typical either way, so an entity does not usually make the loan non-recourse. Vesting generally does not change how the rent is appraised.
Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
Stress-Test Before You Choose
Run both tiers through a bad year before you pick. Not ideal to skip it.
Start with rent. Cut it by a modest amount and see whether the ratio holds above 1.00x at each tier. Next, raise taxes and insurance, since those costs sit in the payment and do not shrink with a larger down payment. Then add vacancy and a repair bill that sit outside the DSCR entirely.
If the 20% file only survives the stress test with perfect assumptions, that is your signal. Either move to 25% down, choose a stronger property, or walk. If both tiers survive with room to spare, the decision becomes about capital efficiency. The coverage number will help you qualify. It will not tell you whether the deal makes money.
The Verdict
Pick 20% down if your file is strong, your coverage clears 1.00x comfortably, and your capital has a better next use. Pick 25% down if the rent is thin, the program or property type caps you at 75% LTV, or you want extra margin for a rough year. The difference between them is real but modest. It is about one-quarter more cash for a loan that is about 6% smaller and a ratio that is a few points stronger.
The strongest files clear both tests: enough equity and enough rental coverage. If you are buying 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. The brokerage arranges financing through select lenders in its wholesale network across 41 markets, including Washington, D.C. For the full picture on how these loans work, read the complete DSCR loans guide.
Frequently Asked Questions
Is 20% down enough for a DSCR purchase?
On many files, yes. Most purchases land at 75%–80% LTV, so 20% down is within the typical range. It generally goes to stronger files with solid credit, coverage at or above 1.00x, and a standard property type. Eligibility depends on lender guidelines, credit, reserves, and the property.
Does putting more than 20% down improve my coverage ratio?
Yes, modestly. A smaller loan means a smaller payment, so the DSCR rises. But taxes, insurance, and association dues stay the same, so the gain is smaller than the percentage cut in the loan. It will not fix a property whose rent is far short of the payment.
Can I go below 20% down?
Sometimes. Select high-leverage purchase programs reach 85% LTV, which is 15% down, typically for borrowers around 700 or better. These programs are narrower on property type and coverage. Most buyers should plan around 20% to 25%.
What if my coverage is under 1.00?
Many select programs start at 1.00. Coverage below 1.00 is available through select lenders in the network, with leverage and terms adjusted. In practice, expect to put more down. Qualification stays subject to lender guidelines, credit, and property review.
Are reserves extra on top of the down payment?
Yes. Reserves are separate liquid cash held after you fund the down payment and closing costs. They commonly run around 6 months of PITIA and vary by lender, leverage, loan size, and transaction type. Loans above $1,500,000 typically step up to about 9 months.
About Lendmire
Lendmire is a non-QM mortgage brokerage (NMLS# 2371349) arranging DSCR investor loans in 41 markets, including Washington, D.C. DSCR eligibility is generally reviewed around property-level rental income rather than personal income, subject to lender and program guidelines, a fit for self-employed investors and LLC-owned portfolios. Lendmire was recognized as a Scotsman Guide Top Mortgage Workplace in 2025 and 2026.
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References
1. Scotsman Guide, “Invest in Your Future”
2. Yahoo Finance / Business Insider
3. Fannie Mae, Appraisers & Property Underwriting
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Prepare a Rental Property for a DSCR Appraisal · Super Jumbo DSCR Purchase vs Cash-Out Refinance on a $3M Rental · DSCR Cashout Refinance
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
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- 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.