Cash to Close on a Rental: Down Payment, Reserves and Credit
The down payment is only part of the check you'll write at closing. Here's everything that goes into cash to close on a rental, with a worked example.
Short answer
Cash to close on a rental is the down payment plus closing costs, and lenders also want to see reserves left over afterward. On many DSCR loans, purchases need 20 to 25% down, closing costs add a few percent of the price, and reserves cover several months of payments.
Key points
- Down payment: commonly 20 to 25% on DSCR purchases.
- Closing costs: lender, title, appraisal and prepaid items.
- Reserves: several months of payments left in your accounts.
The three pieces of cash to close
Down payment. On DSCR purchases, 20 to 25% is common. Stronger credit and a higher ratio can bring it down; weaker ones push it up.
Closing costs. Lender fees, appraisal, title and escrow, recording, plus prepaid insurance and tax escrows. They vary by state and loan size.
Reserves. Lenders often want several months of payments still in your accounts after closing. Reserves usually stay put; they just have to be documented.
Deal sheet: $300,000 rental purchase, illustrative
| Amount | |
|---|---|
| Purchase price | $300,000 |
| Down payment, 25% | $75,000 |
| Estimated closing costs, 3% | $9,000 |
| Reserves, 6 months of a $2,000 payment | $12,000 |
| Cash needed, including reserves | $96,000 |
What moves the number
- Credit score. Higher scores usually earn better pricing and leverage.
- DSCR. A stronger ratio can unlock a smaller down payment; see what DSCR you need.
- Property type. Condos and 2 to 4 unit properties can carry different requirements.
- Portfolio size. Lenders may want more reserves as you grow; see reserves and liquidity.
Have a rental in mind? Send the address and expected rent, and a KREC loan advisor will run the DSCR for you. Check my DSCR
Where the money can come from
Cash in savings and brokerage accounts is easiest to document. Proceeds from refinancing another property work too; see cash-out refinancing on a rental. Gifted or borrowed funds have their own rules, so ask before you move money.
Frequently asked questions
How much down payment do I need for a rental property?
Many DSCR programs require 20 to 25% down on purchases. The exact figure depends on your credit, the property's DSCR and the property type.
Do reserves have to be spent at closing?
No. Reserves usually stay in your accounts. The lender just needs to see them documented, typically through recent bank or brokerage statements.
Can I use a cash-out refinance for my down payment?
Often, yes. Proceeds from refinancing another property are a common source of down payment funds for investors.
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