The Quick Read: Usually you need enough equity or cash to cover 20% to 25% down on the rental, plus closing costs and reserves, because most purchase files placed through Lendmire’s wholesale network land at 75% to 80% of the price borrowed on an investment property, subject to lender guidelines. Equity in your current home matters only as a source of that cash. The rental must also earn enough rent to cover its own payment. Both tests have to pass.
- Down payment: most investment purchases run 20% to 25% down, so equity is measured against the price of the property you want, not a fixed dollar figure.
- Cash beyond the down payment: plan for closing costs and reserves of about 6 months of the full monthly payment on many files.
- Rent test: the rent has to cover the payment, and extra equity never replaces that test.
- Credit: a 620 score is a floor in parts of the network, most programs want around 660, and 700 or higher opens the strongest leverage.
Key Terms Defined
Equity is what your property is worth minus what you owe on it. LTV (loan-to-value) is the loan balance divided by the property’s value. CLTV (combined loan-to-value) adds every loan on the same property, such as a first mortgage plus a home equity line, before dividing.
DSCR (debt service coverage ratio) is the property’s monthly rent divided by its monthly payment. PITIA is that payment: principal, interest, taxes, insurance, and any association dues. Reserves are liquid funds a lender wants you to hold after closing, counted in months of PITIA.
Seasoning is the waiting period a lender wants between buying a property and refinancing it. A cash-out refinance replaces your current loan with a larger one and hands you the difference. A HELOC is a revolving credit line secured by a property you already own.
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Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 8, 2026
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Program parameters update from Lendmire’s centralized guideline source. Taxes and insurance are editable estimates.
As of Oct 8, 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.
So What Number Counts as Enough?
The number is a percentage of the price you are buying, not of what you own. A rental priced near your home’s value at 25% down means pulling about a quarter of that home’s value out of it, plus costs. Only a lot of existing equity makes that workable. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Market-wide, a Scotsman Guide analysis of non-QM originations found an average LTV of 75%. That matches what the brokerage sees across lenders: most purchase files on investment properties sit at 75% to 80% LTV, which is 20% to 25% down. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
The table below shows how the equity ask changes by transaction.
| Transaction | Typical leverage ceiling | What it asks of you |
|---|---|---|
| Purchase, investment property | 75%-80% LTV | 20%-25% down, plus costs and reserves |
| Rate-and-term refinance | Up to 85% LTV | Existing loan replaced, no cash taken out |
| Cash-out refinance, standard rental | Around 75% LTV | About 6 months of ownership is common |
Those are typical ranges from select lenders in the network, not promises. Every file is underwritten individually, and credit, property type, and loan size move the numbers.
Two Equity Questions, Not One
If you fund the purchase from a home you already own, two separate tests apply. Most articles blur them together. The result is a plan that looks fine on paper and stalls at the closing table.
Test one: the source property. A lender caps how much total debt can sit on your current home. That cap, the combined loan-to-value ceiling, is below 100% so you keep a cushion. The more you already owe, the less you can take.
Test two: the new rental. The rental has its own leverage ceiling, its own down payment, and its own rent test. A strong equity position in the first property does not fix a weak rental on the second.
Say your home carries a large cushion and you want a rental at 75% LTV. The cash comes from the home, but the rental still gets underwritten on its own rent, your credit, and your reserves. The strongest files clear both tests: enough equity and enough rental coverage. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Will the Rent Cover It?
DSCR is monthly rent divided by the full monthly payment. A ratio of 1.00 means the rent equals the payment, and 1.00 is where many select programs start. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. No-ratio structures are also available only through select lenders, generally for borrowers who already own a primary residence.
Stronger coverage opens better pricing and leverage. A bigger down payment can also lift the ratio, because it shrinks the loan and the payment with it. It cannot erase a leverage cap, a credit floor, or a reserve rule.
One thing trips up new investors constantly. Clearing 1.00 is not the same as positive cash flow. The calculation counts rent against PITIA only, so repairs, vacancy, management, utilities, and capital expenses sit outside it. Plan your own budget for those.
The rent figure usually comes from an appraiser’s market rent estimate, such as the one documented on Fannie Mae’s Form 1007 rent schedule. DSCR loans are not sold to the agencies, so that form is a reference point for how rent gets estimated, not a rule that governs the loan.
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. The loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines.
What Else Lenders Look At
Equity gets you to the table. These items decide whether you stay there.
- Credit score: a 620 floor exists in parts of the network. Most programs want around 660, and 700 or higher unlocks the strongest leverage tiers.
- Reserves: commonly around 6 months of PITIA, and they vary by lender, leverage, loan size, and transaction type. Conservative rate-and-term files at modest leverage under $1,500,000 can see reserves waived, while larger loans typically step up to about 9 months.
- Loan size: standard programs run up to $3,000,000, and above $2,500,000 the network generally holds to 30-year fixed structures.
- Property type: single-family homes and small multifamily are the usual targets. Manufactured homes, log homes, and barndominiums are not offered through these programs.
Reserves are the line item first-time investors forget. The equity that covers your down payment does not also cover six months of payments, so count the two separately.
Three Readiness Tiers
Use this scorecard against the specific property you want. All three tiers assume the rental’s coverage ratio works.
| Your position | What it looks like | Verdict |
|---|---|---|
| Low | Less than a 20% down payment available for your target price | Wait, or aim at a lower price |
| Moderate | 20%-25% down covered, thin reserves | Almost ready; build the reserve first |
| High | Down payment, closing costs, and about 6 months of reserves all in hand | Ready to compare programs |
A moderate-tier investor often does best by shopping a lower-priced property, not by stretching on a bigger one. The smaller deal asks for less equity, less reserve, and a smaller loan to cover with rent. Less price also means less exposure if the market softens.
The Risk of Stacking Debt
Borrowing the entire down payment against your home creates two loans that depend on one rental. BiggerPockets describes the pattern: an 80% first mortgage on the new property plus a line equal to 20% of the price. That is close to full financing, and the rent has to carry both payments.
Home equity is not guaranteed to hold up either. ATTOM’s latest quarterly report put 41.1% of mortgaged U.S. homes in the equity-rich group, down from 47.4% a year earlier. That tells you equity can shrink, so a line drawn at peak value can feel heavy after prices slide.
A few habits keep the plan sturdy:
- Leave a real cushion in the source property instead of drawing to the cap.
- Test the rental with vacancy and a repair budget, not just the rent on the lease.
- Keep reserves separate from the down payment.
- Confirm the value with an appraisal, since an agent’s estimate and an appraised value often differ.
Lendmire’s piece Use A Home Equity Line Of Credit For Investing covers that route in more detail.
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.
What If You Don’t Have the Equity Yet?
You have several options, and none require waiting passively.
1. Aim lower on price. A smaller purchase cuts the down payment, the reserves, and the rent needed.
2. Build the cash. Down payment, closing costs, and reserves are three buckets. Fill them in order.
3. Raise your score. Moving from the 620 floor toward 660 or 700 can widen your program choices and leverage options.
4. Refinance a rental you already own. A cash-out refinance tops out around 75% LTV on standard rentals, and about 6 months of seasoning is the common expectation. Lendmire’s piece How Much Equity a Top-Leverage Hard Money Rehab Needs for DSCR Cash-Out shows how that works when a renovation comes first.
5. Read the full playbook. The complete DSCR loans guide walks through the programs end to end. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Agency cash-out rules, such as the 6-month title wait that Fannie Mae’s Selling Guide describes for conforming loans, are often assumed to apply to DSCR files. They do not. Each program in the network sets its own seasoning, which is why checking before you plan the timing is worth it.
Frequently Asked Questions
Do I need equity in a home I already own to buy a rental?
No. Equity is one source of cash, and savings work just as well. What matters is that you can cover the down payment, closing costs, and reserves, and that the rental clears the rent test.
What is the minimum down payment on an investment property?
Most investment purchases through the network run 20% to 25% down, which equals 75% to 80% LTV. Terms vary by lender, credit profile, and property, so treat that as a typical range rather than a guarantee.
Can a bigger down payment replace a weak rent number?
Partly. A larger down payment shrinks the loan and can lift the coverage ratio, but it does not remove leverage caps, credit floors, or reserve rules. For sub-1.00 coverage, select lenders in the network have a separate path, with leverage and terms adjusted.
How much should I keep in reserve after closing?
Many files call for about 6 months of PITIA, and loans above $1,500,000 typically step up to about 9 months. Some conservative rate-and-term files at modest leverage under that size can see reserves waived, depending on the lender.
Is passing the 1.00 test the same as making money?
No. The ratio compares rent to the full payment only, so vacancy, repairs, management, utilities, and capital expenses are outside it. A property can clear 1.00 and still lose money in a bad month.
Where to Go From Here
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. Lendmire is a broker that arranges financing through select lenders in its wholesale network, covering 41 markets including Washington, D.C. Programs and terms change, and every file is underwritten individually, so nothing here is a commitment to lend.
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: A decade later, non-QM loans prove a stable, crucial option
2. Fannie Mae Form 1007 (Single-Family Comparable Rent Schedule)
3. BiggerPockets: How to Use Home Equity to Retire, Buy Rentals, or House Hack
4. attomdata.com: Q2 Home Equity and Underwater Report
5. Fannie Mae Selling Guide: Cash-Out Refinance Transactions (B2-1.3-03)
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 Down Payment a HELOC Covers When You Buy Before You Sell · DSCR Loan Requirements For Investment Properties (full Breakdown) · Down Payment For Your First Investment Property
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.