DSCR loans typically require 20 to 25 percent down, though some lenders accept as little as 15 percent

A DSCR loan (Debt Service Coverage Ratio loan) is a commercial real estate loan where the property's income, not your personal income, determines how much you can borrow. Because the lender is betting on the building's cash flow rather than your salary, they want a larger cushion upfront. Most DSCR lenders require a down payment between 20 and 25 percent of the purchase price. A few will go as low as 15 percent, and some require 30 percent or more, depending on the property type and your experience as an investor.

The down payment requirement exists because DSCR loans carry more risk for the lender. If the property underperforms and generates less income than projected, the lender has less equity to fall back on. A larger down payment means you have more skin in the game, which makes the lender more confident you will not walk away if cash flow dries up.

Key Takeaways

  • Most DSCR lenders require 20 to 25 percent down, though some accept 15 percent and others demand 30 percent or higher.
  • Down payment size depends on the property type (multifamily, commercial, industrial), your track record as an investor, and the lender's risk appetite.
  • A lower down payment usually means a higher interest rate or stricter property requirements, because the lender is taking on more risk.
  • Some lenders will finance the down payment through a separate loan, but this increases your total debt and monthly obligations.

How down payment requirements change by property type

Apartment buildings and multifamily properties typically have the lowest down payment requirements—often 20 percent—because they generate steady, predictable rental income and are easier to refinance. Office buildings and retail spaces may require 25 percent or higher because their income is less stable and tenants are more likely to leave during economic downturns.

Industrial and warehouse properties fall somewhere in the middle, usually 22 to 25 percent. Hospitality properties (hotels, motels) and self-storage facilities often require 25 to 30 percent because their income fluctuates seasonally and depends heavily on market conditions. If you are buying a property with a short lease remaining or a single major tenant, expect to put down 30 percent or more.

Why your experience as an investor affects the down payment

Lenders use your track record to decide whether to accept a lower down payment. If you have owned and managed similar properties for several years and can show consistent cash flow, some lenders will accept 15 percent down. If this is your first commercial property or you have no property management experience, expect to pay closer to 25 or 30 percent.

Your experience also affects the interest rate and loan terms. A seasoned investor with a strong portfolio may get a 6.5 percent rate with 20 percent down, while a first-time buyer putting down 25 percent might pay 7.5 percent. The down payment and your experience work together in the lender's mind—more experience can sometimes offset a smaller down payment, and vice versa.

Down payment financing and piggyback loans

Some DSCR lenders will finance part of your down payment through a second loan, sometimes called a piggyback loan or blanket loan. This means you might put down 10 percent in cash and finance the remaining 10 to 15 percent through a separate loan at a higher interest rate. The advantage is that you preserve cash; the disadvantage is that you now have two monthly payments and your total debt load is higher.

If you use a piggyback loan, the lender will calculate your debt service coverage ratio using both loan payments. This can reduce the amount you are allowed to borrow on the primary DSCR loan, because your monthly obligations are higher. Before pursuing this route, compare the total cost of two loans against the cost of saving up for a larger down payment on a single loan.

How down payment size affects your interest rate and terms

A larger down payment usually means a lower interest rate. If you put down 25 percent, you might may have access to for a 6.5 percent rate; if you put down 15 percent, the same lender might charge 7.25 percent. The difference adds up quickly over a 10-year loan term. On a $1 million property with 15 percent down, the difference between 6.5 and 7.25 percent is roughly $8,000 to $10,000 per year in additional interest.

Down payment size also affects loan approval odds. A 20 percent down payment is the standard threshold where most lenders feel comfortable; below that, you may face stricter property requirements, shorter loan terms, or a requirement to show additional reserves. Above 30 percent, you may unlock better rates and more flexible terms, but you are also tying up capital that could go toward other investments.

What happens if you cannot meet the down payment requirement

If you do not have the full down payment saved, you have a few options. You can delay the purchase until you have saved enough, which is the safest path. You can look for a lender with a lower minimum (15 percent instead of 20 percent), though this usually means paying a higher interest rate. You can bring in a co-investor or partner who contributes part of the down payment in exchange for a share of the property and cash flow.

You can also look for a property that generates higher cash flow relative to its price, which may allow you to borrow more on the DSCR loan itself and reduce the down payment burden. For example, a property with a 1.5 DSCR (meaning the income is 1.5 times the debt payment) may may have access to for a larger loan than one with a 1.2 DSCR, even if both are the same price. Working with a mortgage broker who knows multiple DSCR lenders can help you find the option that fits your situation.

Frequently Asked Questions

Can I use a gift or loan from family to cover the down payment?

Most DSCR lenders allow gift funds from family members, but they usually require a signed letter stating the money is a gift and not a loan you have to repay. If it is a loan, the lender will count the monthly payment as part of your personal debt obligations, which can reduce how much you can borrow. Ask the lender for their gift letter requirements before accepting money from family.

What if the property appraises for less than the purchase price?

If the appraisal comes in low, the lender will base the down payment requirement on the appraised value, not the purchase price. This means you will need to put down more cash to reach the required percentage. For example, if you agreed to pay $500,000 but it appraises at $450,000, and the lender requires 20 percent down, you now owe $90,000 instead of $100,000—but you still have to cover the $50,000 gap between the appraisal and purchase price out of pocket.

Do DSCR lenders require reserves after the down payment?

Many DSCR lenders require you to hold cash reserves equal to six to twelve months of the loan payment, separate from your down payment. This means if your monthly payment is $5,000, you may need to show $30,000 to $60,000 in reserves. These reserves stay in your account; the lender just wants to know the money exists in case the property's income drops.

Can I put down less than 15 percent on a DSCR loan?

Very few DSCR lenders will go below 15 percent down, and those who do typically charge significantly higher interest rates (often 8 to 9 percent) and require strong reserves and property performance. Some portfolio lenders (banks that keep loans on their own books rather than selling them) may offer 10 percent down, but this is rare and usually only for experienced investors with a strong relationship with the lender.