The Quick Read: Meeting the down payment on a 5 to 10 unit DSCR loan starts with the loan-to-value cap, because your cash is simply the price minus whatever the lender will fund. Across the select lenders in Lendmire’s wholesale network, purchase files typically land at 75%-80% LTV, so plan on roughly 20%-25% down. Then prove the building’s rent covers its payment, and keep cash aside for reserves and closing costs, which are separate from the down payment.
- Down payment equals price times one minus the LTV cap, so a 75% cap means 25% down.
- Purchase leverage typically runs 75%-80% LTV; cash-out refinances top out around 75% LTV.
- Many select programs start at 1.00 coverage, and stronger ratios open better terms.
- A bigger down payment can lift coverage, but it never erases credit floors or reserve rules.
- Reserves, closing costs and the appraisal are paid from separate cash.
Five units is where a building stops being a bigger duplex. The paperwork changes, the appraisal changes, and lenders get more careful about how much they will lend. This guide walks through how the down payment gets set, how coverage interacts with it, where the money can come from, and where the general rule breaks.
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What Is a 5 to 10 Unit DSCR Loan?
A DSCR loan for a 5 to 10 unit building is a business-purpose investor loan that qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. You are not asked to prove personal income the way a standard mortgage would. DSCR stands for debt service coverage ratio, and it measures whether the building’s income covers its debt.
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.
Why does five units matter? The four-unit line is the industry’s boundary between residential and commercial treatment. Fannie Mae’s Selling Guide describes appraisal form 1025 as the form for two- to four-unit properties. DSCR loans are not agency loans, so that is contrast only. But it shows where the line sits. Past four units, the value of a building leans on its income and operations rather than on nearby sales of similar homes.
For you, that shift has one practical effect: lenders usually cap leverage lower on larger buildings than on a duplex. They are underwriting a small operating business, not just rent against a payment. You can read the full mechanics in Lendmire’s complete DSCR loans guide.
How Is the Down Payment Calculated?
Your down payment is the inverse of the maximum LTV. LTV, or loan-to-value, is the loan amount divided by the lesser of the purchase price or the appraised value. The lender funds up to the cap. You fund everything else.
Here is the plain-English formula:
- Down payment percentage = 100% minus the maximum LTV.
- At 75% LTV on a purchase, you put down 25%.
- At 80% LTV on a purchase, you put down 20%.
- If the appraisal comes in below the price, the lender lends against the lower number, so your cash goes up.
- Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
On a 5 to 10 unit building, the appraisal is income-based, so value tracks net operating income and the market cap rate. A seller with thin or messy books can produce a lower appraised value than the contract price.
Across the network, most purchase files sit at 75%-80% LTV. Select high-leverage programs reach 85% LTV, about 15% down, but those usually want a score near 700 or better. For a larger building, expect the conservative end of the range. Treat 15% down as the exception, not the plan. Every figure here is subject to lender guidelines, and each file is underwritten individually.
| Transaction | Typical ceiling | What it means for you |
|---|---|---|
| Purchase | 75%-80% LTV | About 20%-25% down |
| Select high-leverage purchase | Up to 85% LTV | About 15% down, strong credit |
| Cash-out refinance | About 75% LTV | You keep about 25% equity |
On a refinance, no purchase-style down payment exists. The equivalent is the equity you must leave in the building after the cap applies. Cash-out files commonly expect about six months of seasoning, meaning you have owned the property that long first.
How Does DSCR Interact With the Down Payment?
A larger down payment shrinks the loan and the monthly obligation, which lifts your coverage ratio. A smaller one does the reverse. The two tests work together, and the strongest files clear both: enough equity and enough rental coverage.
DSCR is the building’s income divided by its debt service. On one-to-four unit loans, that is usually rent compared with PITIA, which is principal, interest, taxes, insurance and any association dues. On larger buildings, lenders commonly look at net operating income after vacancy and operating expenses, so the same building can show a lower ratio.
Here is the thing to keep straight. Many select programs start at 1.00, where income just covers the payment. A separate path through select lenders in the network goes below 1.00, with leverage and terms adjusted. As Wikipedia’s entry on the debt service coverage ratio puts it, a ratio below 1 signals negative cash flow on that measure. Stronger ratios open better pricing and leverage.
Consider a scenario. Say you are buying a six-unit building and the file runs at coverage just under 1.00 at 75% LTV. Putting more down shrinks the loan, so the ratio climbs, and the building may clear a tier it missed. Or a lender may step you down to a lower LTV band anyway. Either way, more equity is the usual fix. A looser rule is not. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
One caution matters. Clearing 1.00 does not mean the building produces positive cash flow. DSCR compares rent to PITIA only, so budget separately for everything it leaves out: repairs, vacancy, management, utilities and capital expenses.
Where Can the Down Payment Come From?
Your down payment must come from your own documented resources, a documented equity source, or a partner. Lenders want to see where the money came from and that it is genuinely yours. Unsecured borrowing is the classic way files get declined.
Acceptable sources typically include:
- Cash in your bank or brokerage accounts, with statements.
- Proceeds from selling another property.
- Proceeds from a cash-out refinance on a different rental you own.
- A partner’s capital, documented through the entity’s paperwork.
- Business funds held in an LLC account, depending on program guidelines.
If you buy through an LLC, that is subject to lender program eligibility, and the entity documents become part of the file.
What typically does not work? Borrowing the down payment on a credit card or personal loan, seller financing, or any lien placed against the down payment itself. A non-arm’s-length deal, such as buying from a relative at a favorable price, also draws scrutiny. The principle is skin in the game: the lender wants real equity at risk, whether it is yours or a documented partner’s.
Expect to explain large deposits. A clean paper trail matters more than people think. Move money between your own accounts early, keep statements together, and avoid surprising deposits right before you apply. Gift funds vary by program, and some lenders require a minimum contribution from you or bar gifts on investment property. Ask before you plan around them.
Why the Down Payment Is Not the Only Cash You Need
Cash to close is the down payment plus closing costs plus reserves, and you should budget all three. People who budget only the first number end up scrambling at the end of the file.
Reserves are cash left in the bank after closing. They vary by lender, leverage, loan size and transaction type. Commonly the requirement is around six months of PITIA. Conservative rate-and-term files at modest leverage under $1,500,000 can see reserves waived. Loans above that size typically step up to about nine months. Reserves are separate from the down payment, so the same dollar cannot count twice.
Add the pieces that people forget:
- An income-based commercial appraisal, which tends to cost more than a standard residential one.
- Third-party reports the lender orders on the building.
- Prepaid taxes and insurance at closing.
- Title and legal costs.
Here is a modeled example using percentages only. Picture a 10-unit building at 75% LTV. You need 25% down. On top of that, you hold reserves for roughly six months of the full payment, and you pay closing costs. A buyer who has exactly 25% saved has covered the down payment but is not yet ready to buy. They are still about two cash piles short: reserves and closing costs. Every figure here varies by lender and program.
Where the General Rule Breaks
Rules of thumb fail at the edges. These are the named cases to check before you commit.
Not every lender touches this size. Many DSCR programs stop at four units. A smaller group of select lenders in the network handle 5 to 10 units with their own overlays, and unit ceilings vary by program. Part of the work is matching the building to a program that actually offers it.
The low-down myth. You will see claims of 10%-15% down. Those claims mostly describe one-to-four unit properties with strong credit. On a 5 to 10 unit building, plan for the lower-leverage end of the DSCR range, which is why budgeting 25% down is a sensible baseline. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Credit tiers. A 620 floor exists in parts of the network, and most programs want around 660. A score of 700 or better unlocks the strongest leverage tiers. A weaker score pushes you toward lower LTV, which means more cash.
Thin seller books. If the seller cannot show operating history, the lender assumes conservative expenses. NOI drops, coverage drops, and the loan can shrink. That raises your required cash even though the contract price never moved. Ask for a rent roll, leases and trailing operating statements early.
Experience. Some 5+ unit programs prefer prior investment experience. Requirements vary, so a first-time buyer should ask upfront.
Mixed-use. Commercial space on the ground floor can change eligibility and LTV. Thresholds differ by program.
Property types that are not offered. Manufactured homes, log homes and barndominiums are not offered through these DSCR programs.
Larger loans. Standard programs run up to $3,000,000. Above $2,500,000 the network generally holds to 30-year fixed structures, which affects the payment and so the coverage ratio.
Occupancy at closing. Lenders often care how full the building is when you buy. Lendmire’s piece How to Meet DSCR Occupancy Standards on a 5-10 Unit Building covers that side.
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.
A Step-by-Step Plan for Building Your Cash
Sequence matters, so work in this order.
1. Confirm the building qualifies. Check unit count, property type and mixed-use space against the program.
2. Estimate NOI conservatively. Use realistic vacancy and operating expenses, not the seller’s best case.
3. Size the loan. Apply the LTV cap to the lesser of price or appraised value.
4. Compute your down payment percentage. For example, 25% on a 75% LTV purchase. Every figure here varies by lender and program, since guidelines, property type, leverage, and credit profile all apply.
5. Test coverage. If it falls short, see how much extra equity lifts the ratio.
6. Add reserves and closing costs. That is your true cash to close.
7. Seasoning and sourcing. If you plan to pull equity from another rental, start early. A cash-out refinance has its own seasoning expectation, around six months, and the funds need a paper trail.
8. Gather documents. Typical files include a rent roll, leases, operating statements, bank statements and entity documents. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
If you are short on cash, you have honest options. Buy a smaller building, bring in a partner, recycle equity from a stabilized rental, or aim for a stronger credit tier to reach higher leverage. Lendmire’s piece How to Qualify for a Smaller Down Payment on a DSCR 5 to 10 Unit goes deeper on that last route.
Brokers who work across many lenders see a pattern on these files. Deals rarely fail on the headline LTV. They fail on a seller’s incomplete books, an appraisal below contract, or an investor who budgeted the down payment and nothing else. Running the conservative NOI first, before making an offer, prevents most of those surprises.
When Is DSCR the Wrong Tool?
DSCR is the wrong fit when the building cannot show stable income, when it is mostly vacant and needs heavy repair, or when the unit count or property type falls outside the programs available. In those cases, small-balance commercial, portfolio or bridge financing may suit the deal better, and each has its own cash requirements.
DSCR also does not suit an investor who needs the loan to ignore the building. Lenders look closely at rent rolls and operations at this size. If the property itself cannot carry the debt, a bigger down payment can help up to a point, but it will not rescue a weak building. Programs change and every file is underwritten individually, so check the current options before building a plan.
Key Terms Defined
DSCR (debt service coverage ratio): Income from the property divided by its debt payment, used to judge whether the building covers its loan.
LTV (loan-to-value): The loan amount as a percentage of the lesser of price or appraised value.
PITIA: Principal, interest, taxes, insurance and association dues, the full monthly obligation.
NOI (net operating income): Rent minus vacancy and operating expenses, before debt payments.
Reserves: Cash you must keep after closing, commonly measured in months of PITIA.
Seasoning: The waiting period a lender wants between buying a property and refinancing it.
Cash-out refinance: A new loan larger than the old one, with the difference paid to you.
Business-purpose loan: A loan made for investment or business use rather than for a personal home.
Frequently Asked Questions
Can I buy a 5 to 10 unit building with no money down?
Not through a standard DSCR loan. Lenders want documented equity in the deal, whether it is yours or a documented partner’s. Seller financing or a lien against the down payment conflicts with the skin-in-the-game rule. Plan on roughly 20%-25% down on most purchase files, with select programs reaching about 15% for strong credit profiles.
Can I use a cash-out refinance on another rental for the down payment?
Yes, commonly. Proceeds from a documented cash-out refinance on a different property are a recognized equity source. Cash-out on standard rentals tops out around 75% LTV, and about six months of seasoning is the usual expectation. Start early, because the refinance has to be complete and documented before you apply for the purchase.
Does a bigger down payment fix a failing DSCR?
Often it helps. More equity means a smaller loan and payment, so coverage rises. It will not erase credit floors, reserve rules or property eligibility. Some files need both a lower LTV and a stronger ratio. Select lenders in the network also offer sub-1.00 paths, with leverage and terms adjusted.
Are reserves part of my down payment?
No. Reserves are separate cash held after closing, commonly around six months of PITIA. They can be waived on conservative rate-and-term files at modest leverage under $1,500,000, and loans above that size typically step up to about nine months. Closing costs are also separate.
Can I borrow through an LLC?
Often yes, subject to lender program eligibility. The entity documents and the source of funds both become part of the file, and lenders will ask who owns the LLC.
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. 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.
About Lendmire
Lendmire, NMLS# 2371349, is a non-QM mortgage broker serving real estate investors in 41 markets, including Washington, D.C., through DSCR investor loan programs. Qualification is generally reviewed around the subject property’s rental income, not the borrower’s W-2 history, a practical fit for LLC-titled portfolios and self-employed investors. All scenarios remain subject to lender review and program guidelines. Two consecutive Scotsman Guide Top Mortgage Workplace recognitions (2025, 2026).
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References
1. Fannie Mae Selling Guide B4-1.2-01
2. Wikipedia: Debt service coverage ratio
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 Meet DSCR Lender Insurance Requirements for an Airbnb Before Funding · Can You Get a DSCR Loan Before the Property Is Rented? · How to Calculate DSCR on a 2-4 Unit Airbnb Property
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.