DSCR Loan Interest Rate Buydown Strategy: The Math Behind Points, Seller Credits, and Break-Even Analysis

Discount points on DSCR loans don't follow the same economics as conventional mortgages. The spread between par rate and buydown rate is wider, the cost per point is higher, and the break-even calculation shifts because you're optimizing for cash flow and DSCR ratio — not just monthly payment reduction. Most borrowers either overpay for a rate they won't keep long enough to recoup, or skip the buydown entirely when the math clearly favors it.

This guide breaks down permanent buydowns, temporary buydowns, and seller-funded structures specific to DSCR lending, with full dollar-amount calculations at each step.

How Discount Points Work on DSCR Loans

A discount point equals 1% of the loan amount, paid upfront at closing to reduce the interest rate. On a $300,000 DSCR loan, one point costs $3,000.

The rate reduction per point varies by lender and market conditions. On conventional owner-occupied loans, one point typically buys down the rate by 0.25%. On DSCR loans, the reduction is usually smaller — 0.125% to 0.20% per point — because the risk premium embedded in DSCR pricing absorbs some of the buydown.

Current DSCR Rate Environment (Q1 2026)

As of February 2026, par DSCR rates for a 30-year fixed loan with 25% down and 1.20+ DSCR range from 7.25% to 8.50%, depending on credit score, property type, and lender. This is 1.50–2.50% above conventional investment property rates.

These are par rates — no points. Each pricing tier has a buydown grid that specifies the cost to reduce the rate in 0.125% increments.

Permanent Buydown: Full Calculation

Scenario Setup

• Property purchase price: $400,000
• Down payment: 25% ($100,000)
• Loan amount: $300,000
• Par rate: 7.75% (30-year fixed)
• Monthly PITIA at par: $2,148 (P&I) + $350 (taxes) + $175 (insurance) + $0 (no HOA) = $2,673
• Market rent: $3,200/month
• DSCR at par: 3,200 ÷ 2,673 = 1.197

This DSCR is dangerously close to the 1.20 threshold some lenders require. A buydown could push the ratio above that line, potentially qualifying for better terms or meeting a lender's minimum.

Buying Down to 7.50%

Cost: 2 points ($6,000) for a 0.25% reduction.

• New monthly P&I: $2,098
• New PITIA: $2,623
• New DSCR: 3,200 ÷ 2,623 = 1.220
• Monthly savings: $50
• Break-even: $6,000 ÷ $50 = 120 months (10 years)

Buying Down to 7.25%

Cost: 4 points ($12,000) for a 0.50% reduction.

• New monthly P&I: $2,048
• New PITIA: $2,573
• New DSCR: 3,200 ÷ 2,573 = 1.244
• Monthly savings: $100
• Break-even: $12,000 ÷ $100 = 120 months (10 years)

At a 10-year break-even, a permanent buydown only makes financial sense if you plan to hold the loan for at least that long. Given that the average DSCR loan is refinanced or the property sold within 3–7 years, most permanent buydowns on DSCR loans are a losing bet on a pure payment-savings basis.

When Permanent Buydowns DO Make Sense

The break-even math above ignores one critical factor: DSCR threshold qualification.

If a 0.25% rate reduction moves your DSCR from 1.18 to 1.22, and the lender's cutoff is 1.20, that $6,000 buydown isn't buying you $50/month in savings — it's buying you the loan itself. Without it, you either:

• Need to bring a larger down payment (increasing your out-of-pocket by $15,000–$30,000 to hit 30% down)
• Accept a rate 0.50–0.75% higher from a lender with a lower DSCR floor
• Lose the deal entirely

In that context, $6,000 is a bargain.

Rule of thumb: Buy down the rate when it crosses a DSCR threshold. Don't buy it down for pure payment savings unless your hold period exceeds the break-even.

Temporary Buydowns: The 2-1 and 3-2-1 Structures

Temporary buydowns reduce the rate for the first 1–3 years, then revert to the permanent rate. The cost is deposited into an escrow account at closing and used to subsidize payments during the buydown period.

2-1 Buydown on a DSCR Loan

Using the same $300,000 loan at 7.75% par:

Total buydown cost: $4,764 + $2,424 = $7,188 (deposited into escrow at closing)

The 2-1 buydown costs $7,188 versus $6,000 for a permanent 0.25% reduction. But the first-year cash flow improvement is dramatic: $397/month vs. $50/month.

Why Temporary Buydowns Are Underused in DSCR Lending

Most DSCR lenders do not offer temporary buydowns as a standard product. The reason: DSCR qualification is based on the fully-indexed (permanent) rate, not the temporary rate. The lender calculates your 1.20 DSCR at 7.75%, not at 5.75%.

This means the temporary buydown doesn't help you qualify. It helps your cash flow in years 1–2, which matters if:

• You're doing value-add improvements that will raise rent in year 2–3
• The property has a below-market lease expiring in 12–18 months
• You want front-loaded cash flow to replenish reserves after a large down payment

Lenders offering temporary buydowns on DSCR (as of 2026): Kiavi, Lima One Capital, and a handful of correspondent lenders through Angel Oak and A&D Mortgage. Availability changes quarterly — always confirm with your loan officer.

Seller-Funded Buydowns: Using the Seller's Money

Seller concessions are the most efficient way to fund a buydown because you're using someone else's capital to reduce your rate. On DSCR loans, seller concession limits are typically:

These limits vary by lender. Some DSCR programs cap seller concessions at 2% regardless of LTV. Others follow Fannie Mae investment property guidelines (2% for LTV > 75%, 6% for LTV ≤ 75%), even though DSCR loans are non-QM.

Seller-Funded Buydown: Worked Example

Purchase price: $400,000 Seller concession: 2% ($8,000) Applied to: Permanent rate buydown from 7.75% to 7.125% (5 points at $6,000 per 0.125% = costs vary; in this example, $8,000 buys approximately 0.625% reduction with this lender's pricing grid)

• Par monthly P&I: $2,148
• Bought-down P&I: $2,023
• Monthly savings: $125
• Your cost: $0 (seller pays)
• Break-even: Immediate

The seller effectively transferred $8,000 of their proceeds to buy you a rate reduction that saves $125/month for the life of the loan. Over a 5-year hold, that's $7,500 in savings — funded by the seller.

Negotiating Seller Concessions in Practice

Sellers rarely offer concessions unprompted. Here's how to structure the ask:

1. Increase your offer price by the concession amount. Offer $408,000 with an $8,000 seller concession instead of $400,000 with no concessions. The seller nets the same amount. The appraisal needs to support $408,000 — if comps support it, this is a wash.

2. Use concessions instead of price reductions. If a seller is willing to drop from $415,000 to $400,000, counter at $408,000 with $8,000 in concessions. You get $8,000 toward your buydown. The seller gets $408,000 instead of $400,000. The lender funds based on the lower of purchase price or appraised value.

3. Target properties with 30+ days on market. Sellers with stale listings are more concession-friendly. MLS data shows investment-suitable properties (2–4 units, single-family in B-class neighborhoods) averaged 47 days on market nationally in Q4 2025, per Redfin data.

The Appraisal Risk

Seller-funded buydowns built into a higher purchase price only work if the appraisal comes in at or above the contract price. If you offer $408,000 but the appraisal comes in at $400,000, the lender bases LTV on $400,000. Your 75% LTV loan is now $300,000 on a $400,000 value, but you owe the seller $408,000. You'd need to bring an additional $8,000 cash to closing — wiping out the benefit.

Mitigation: Before offering above asking, check recent comps within 0.5 miles and 90 days. If the average price per square foot supports your inflated offer, proceed. If it's a stretch, negotiate the concession within the original price instead.

Advanced Strategy: Combining Buydown With DSCR Optimization

Strategy 1: Buydown to Cross the 1.25 DSCR Threshold

Many DSCR lenders offer tiered pricing:

If your property's DSCR is 1.22 at par rate, you're in the 1.00–1.24 bucket, paying a 0.25–0.50% penalty. But buying down the rate reduces your PITIA, which increases the DSCR, which could push you into the ≥1.25 bucket — which itself further reduces your rate.

This creates a feedback loop:

Starting point: 7.75% par + 0.25% DSCR penalty = 8.00% effective rate, DSCR 1.15.

Buy 2 points ($6,000) → Rate drops to 7.75% → PITIA drops → DSCR rises to 1.26 → DSCR penalty removed → Effective rate is 7.75% instead of 8.00%.

Net effect: You paid $6,000 for a 0.25% rate reduction, but the DSCR threshold crossing gave you an additional 0.25% reduction — totaling 0.50% off your effective rate for the price of 0.25%.

Strategy 2: Buydown + Rent Premium Timing

If you're acquiring a property with below-market rents (common with inherited tenants or Section 8 tenants whose voucher hasn't been updated), a temporary buydown bridges the gap:

1. Close with a 2-1 buydown using seller concessions
2. During year 1 (while enjoying the reduced rate), raise rents to market at lease renewal
3. By year 2, the higher rent supports a stronger DSCR at the permanent rate
4. If you refinance at the 6-month mark, the new (higher) rent improves your refi terms

Strategy 3: Points as a Tax Deduction

Discount points on investment property loans are deductible — but not in the year paid. Unlike owner-occupied mortgages, where points can be deducted in the year of purchase, investment property points must be amortized over the life of the loan.

On a 30-year loan, $6,000 in points yields a $200/year deduction. At a 32% marginal tax rate, that's $64/year in tax savings — negligible. Don't let the tax deduction drive your buydown decision. The cash flow math is what matters.

Rate Float-Down and Lock Strategies

DSCR loans typically offer rate locks of 30, 45, or 60 days. Longer locks cost more (usually 0.125–0.25% for each 15-day extension). In a falling rate environment, some lenders offer float-down provisions:

Standard float-down terms:

• Available once during the lock period
• Rate must have dropped by at least 0.25% from your locked rate
• New rate is typically the midpoint between your locked rate and the current lower rate
• Cost: 0.50% of loan amount or built into the original lock pricing

Example: You lock at 7.75%. Rates drop to 7.25% during your 45-day lock. The float-down gives you (7.75% + 7.25%) ÷ 2 = 7.50%. Not the full 7.25%, but 0.25% better than your lock.

In a rising rate environment: Lock early, lock long. If rates are climbing 0.125% per month (as they did in Q3 2025), a 60-day lock at a 0.125% premium is cheaper than floating and absorbing a 0.25% increase.

Decision Framework: Should You Buy Down Your DSCR Rate?

Use this checklist:

1. Does the buydown cross a DSCR tier threshold? → Yes: strongly consider buying down.
2. Is the seller willing to fund the buydown via concessions? → Yes: almost always take it (your break-even is day one).
3. Is your planned hold period longer than the break-even? → Yes: buydown is financially positive. No: skip it.
4. Are you in a falling rate environment where you'll likely refinance in 12–24 months? → Skip the permanent buydown. Consider a temporary buydown if available.
5. Do you have excess cash at closing that could instead go toward a higher down payment? → Compare: does an extra 5% down (reducing LTV from 75% to 70%) get you a better rate than spending the same dollars on points?

Down Payment vs. Points: Head-to-Head

$15,000 extra cash available. Option A: Apply to down payment. Option B: Apply to discount points.

Option A produces a lower payment and higher DSCR, despite Option B having a lower rate. The lower loan balance wins. Extra down payment almost always beats points on DSCR loans unless you're specifically targeting a DSCR threshold that points can achieve and down payment cannot.

Common Mistakes

Buying points to "lock in" a rate you'll refinance out of. If rates drop 1% in the next 18 months and you refinance, those points are sunk costs. The 2023–2024 cohort of DSCR borrowers who bought points at 8.5% and refinanced 14 months later learned this the hard way.

Ignoring lender-specific buydown grids. Not all lenders charge the same per-point reduction. Lender A might offer 0.25% per point; Lender B offers 0.125%. Get buydown pricing from at least three lenders before deciding.

Conflating rate with cost. A 7.25% rate with 4 points costs more over a 5-year hold than a 7.75% rate with 0 points. The lower rate feels better. The math doesn't care about feelings.

Bottom Line

Rate buydowns on DSCR loans are a precision tool, not a default strategy. Use them when crossing a DSCR threshold justifies the cost, when seller concessions fund the buydown at zero cost to you, or when your hold period clearly exceeds the break-even. In every other scenario, that cash works harder as additional down payment or post-closing reserves.