Qualifying
DSCR Loan Minimum Property Value and Loan Amount
The cheapest rentals often cash flow the best, but many DSCR lenders will not finance them, because of a minimum property value and a minimum loan amount. Here is what those floors are and how to clear them.
One of the most frustrating moments in investing is finding a rental that cash flows beautifully, only to learn no DSCR lender will finance it. The culprit is usually a floor: a minimum property value, a minimum loan amount, or both. This hits affordable markets hardest.
The two floors
- Minimum loan amount. Many DSCR lenders will not write a loan below roughly 75,000 to 100,000 dollars. With a typical 20 to 25 percent down payment, a cheap property produces a loan under that floor.
- Minimum property value. Some lenders also set a minimum as-is value, often in the same range, regardless of the loan size. A very low-value property is simply outside their box.
Both exist because a small loan costs a lender nearly as much to originate and service as a large one, so the economics do not work below a certain size. It is not about the deal's quality; it is about the loan's size.
How to work around the floors
- Ask first. Confirm the minimum loan amount and minimum property value before you make an offer, especially in affordable markets like Ohio, Michigan, and Missouri.
- Find a lower-floor lender. Some lenders specialize in smaller loans. Shopping is the fix.
- Put less down. A higher loan-to-value raises the loan amount above the floor, if the ratio and credit support it. See low down payment lenders.
- Bundle into a portfolio loan. Several cheap properties under one blanket loan can clear a minimum that each would fail alone. See portfolio loans.
Before you buy a low-price rental
Run the loan amount against the lender's floor first, then check your standing with the pre-qualifier and the full bar on the requirements guide.