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DSCR
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Angela D.

I have seen lenders advertise "no minimum DSCR" and others require 1.25. What is the real story, and how does the ratio affect my rate and down payment?

Answer from Jon Howard (HCP): The honest answer is tiered. Our sweet spot is DSCR ≥ 1.15 — you get the best pricing, 20% down, and a full 30-year fixed. Between 1.00 and 1.15, you are still fully qualified but we typically see a 25-50 basis point bump in rate. Below 1.00 (negative cash flow, property does not cover its own payment), we can still close with what is called "No Ratio" or "DSCR < 1" programs, but you are looking at 25% down minimum and rates roughly 75-125 bps higher.

Three levers you can pull if your DSCR is marginal: (1) increase down payment to 25-30%, which lowers PITIA and raises DSCR; (2) buy down the rate with points — each point roughly drops the payment enough to move DSCR up 0.05-0.08; (3) structure a 40-year interest-only for the first 10 years, which materially lowers the "P" in PITIA.

One trap to avoid: lenders who quote DSCR off the long-term rent survey but underwrite off the actual signed lease. Always confirm which number they are using. At HCP we underwrite to the higher of market rent or actual lease so clients are not surprised at the CTC stage.

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Jon Howard
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You are right to be skeptical of the "no minimum DSCR" ads — those are usually teaser programs with 30%+ down and price hits that make the deal uneconomical. Here is the honest tiered reality at HCP:

  • DSCR 1.25 or higher — best pricing, 20% down is achievable on 1-4 units, 680+ FICO gets you A-tier rates.
  • DSCR 1.00–1.24 — still bankable, usually 25% down, slight rate bump (roughly 0.25–0.50% over top tier).
  • DSCR 0.75–0.99 — yes, lenders will do it, but expect 30%+ down and meaningful pricing hits. This is where "no DSCR minimum" marketing lives.
  • Below 0.75 — possible on a few non-QM desks but you are paying for it in rate and down payment.

Every 0.10 improvement in DSCR above 1.00 typically saves real money on rate and/or down payment. So running the numbers with accurate market rent (not Zestimate) is the highest-leverage thing you can do before applying.

Practical next step: Get a realistic market rent comp, then solve backward from a 1.25 ratio to see what purchase price / down payment gets you there. That is the deal you should actually chase.

Happy to run your specific numbers — call 970-457-9107 or email jon@homesteadcapitalpartners.com.

NMLS #2587985 · Licensed Colorado · For educational purposes — not a commitment to lend.

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Riley O'Sullivan
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Quick reference for anyone reading — I pulled together a DSCR ratio cheat-sheet on our Pinterest with the tier-by-tier breakdown Jon describes (1.25+ / 1.00-1.24 / below 1.00 pricing bands). Saves scrolling back through threads. The point about "no DSCR minimum" ads being mostly teaser programs is the thing I wish every investor understood before shopping. The real negotiation isn't finding a lender who'll approve you at 0.90 — it's figuring out how much down payment moves you into the band where pricing actually works.

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Rachel F.
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Jon's tier breakdown matches what I saw shopping three lenders last spring. I was buying a duplex in Tucson where the DSCR was exactly 1.07 on conservative rents, and the pricing gap between "no minimum" marketing and reality was brutal.

One lender advertised "no DSCR minimum, 20% down" — turned out to mean 35% down once I actually applied, plus 1.5 points in fees and a rate about 1.25 higher than the 1.25+ ratio lenders. The next lender priced me cleanly at 1.07 but said if I could get to 1.15 they'd drop the rate 0.375. I bumped the down payment from 20% to 23% to force the ratio up and it saved me more over seven years than the extra cash outlay cost in opportunity.

The lesson I'd pass on: treat the DSCR ratio as a dial you control by adjusting down payment. Don't shop "who will approve me at 1.0" — shop "what ratio do I need to hit for A-tier pricing" and then back into the deal structure. The marketing copy on some lender sites is genuinely misleading.

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