Is a No Down Payment DSCR Loan Possible?

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DSCR, or debt service coverage ratio, loans are a type of commercial real estate financing popular with investors. DSCR loans are underwritten based on the property’s projected cash flow rather than the borrower’s income and credit score.

Given their riskier nature, lenders typically require a substantial down payment on DSCR loans – often in the 20-40% range. This upfront stake helps secure the loan and gives the borrower immediate equity.

Why Lenders Require Down Payments

Lenders mandate down payments on DSCR loans for a few key reasons:

  • Down payments reduce the lender’s risk if the borrower defaults.
  • They ensure the borrower has “skin in the game” and won’t walk away easily.
  • Down payments allow the borrower to build instant equity in the property.

For these reasons, it is very uncommon to find a no down payment DSCR loan option on the market.

Alternatives to Explore

While rare, there may be some alternative financing options for investors who absolutely cannot make a down payment:

  • Hard money loans are asset-based and may offer no down payment deals, but with higher rates.
  • Private lenders may be more flexible on down payment requirements than banks.
  • Crowdfunding real estate investments pools money from multiple sources.
  • Partnerships can help raise a down payment through combining assets.

In the end, the best way to get a competitive DSCR loan is to come to the table with 20-40% down. But for investors with limited capital, exploring creative no down payment alternatives could provide another path to financing real estate deals.

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