DSCR Loan with Seller Financing: The 75/15/10 Stack

A seller willing to carry a second is one of the most useful tools in a real estate investor’s arsenal — but only if the senior DSCR lender will allow it. Most investors assume the senior lender is indifferent to what sits behind them in second position. Many are not. This article covers exactly what senior DSCR lenders require when a seller second is part of the capital stack, which lenders will accept the structure, and how to document it so the deal closes. The 75/15/10 stack is workable — but the terms matter as much as the concept.

If you are new to DSCR loans generally, start with what a DSCR loan is before working through the stack mechanics below.

The 75/15/10 Structure Explained

The 75/15/10 stack is a three-layer capital structure on an investment property purchase:

Purchase Price:    $1,000,000   100%
────────────────────────────────────
Senior DSCR loan:    $750,000    75%   (first-lien, institutional)
Seller second note:  $150,000    15%   (second-lien, seller-held)
Borrower cash:       $100,000    10%   (equity at close)
CLTV (combined LTV):   90%

The investor contributes only 10% of purchase price in cash. The seller, rather than receiving full proceeds at closing, accepts a promissory note for 15% of the purchase price — typically amortizing over 20–30 years with a 3–5 year balloon, at a negotiated interest rate (often 5%–8%).

Why sellers agree to this: A seller who would otherwise carry the entire note (owner-financing 80%+) may actually prefer the 75/15/10 structure because 75% of their equity is liquidated at closing. They accept the risk only on the 15% second position, and the senior lender’s underwriting provides some comfort that the borrower is creditworthy.

Why investors want it: The 10% cash-to-close requirement is substantially below the 20%–25% a DSCR senior alone would require. On a $1M property, that’s $100K–$150K of capital freed up for the next deal.

The structure works — when structured correctly. The failure mode is a senior lender who discovers the seller second mid-underwriting and either kills the deal or demands a refi of the second out of the structure.

CLTV Limits by Lender

Not every DSCR senior lender accepts a seller second in second position. Below is a representative matrix from our current lender network. Programs change; verify current terms before submitting.

The practical implication: disclose the seller second before application, not during underwriting. A lender that discovers an undisclosed second mid-process will not simply add it to the file — they will likely kill the deal and may report the omission.

In our network, roughly 40% of DSCR lenders will accept a properly structured seller second in second position. Of those, most cap CLTV at 85%–90%. The 75/15/10 split is therefore at or near the limit for most programs that allow it at all.

Subordination Agreement Requirements

A subordination agreement is the legal instrument that places the seller’s second lien behind the senior DSCR lender in priority. Most senior DSCR lenders require the following:

• Recordation: The seller second must be recorded at the county level, in second lien position, no later than the senior loan closing. An unrecorded note does not exist from the senior lender’s perspective — and if discovered post-closing, can trigger a due-on-sale or default provision.
• Payoff at sale: The subordination agreement must require the seller second to be paid in full upon sale or transfer of the property. This prevents the seller second from “running with the property” in a future sale.
• Due-on-sale clause: The seller note must contain an acceleration clause triggered by transfer, matching the senior’s due-on-sale provision.
• Non-interference: The seller second cannot have provisions that would allow the seller-lender to accelerate ahead of or simultaneously with the senior lender, or to take actions that interfere with the senior’s foreclosure rights.

Most real estate attorneys can draft a compliant seller note and subordination agreement. Some title companies will also facilitate. The cost is typically $500–$1,500 in legal fees — worth it relative to the capital savings the structure provides.

Recorded vs. Unrecorded Seller Notes

This distinction is more consequential than most investors realize.

A recorded seller note in second position is known to the world. The senior DSCR lender sees it, underwrites the combined debt service (PITIA on the senior + payment on the second), and either accepts or declines. The borrower’s exposure is disclosed DSCR math and the lender’s CLTV cap.

An unrecorded seller note — sometimes called a silent second — is not disclosed on the HUD-1/closing disclosure and not visible to the senior lender. This is mortgage fraud. It is a federal crime under 18 U.S.C. § 1014. The fact that it happens in informal creative-finance circles does not make it legal or advisable.

Some lenders will accept a seller note that is not recorded but is accompanied by a signed subordination agreement. These programs are uncommon and require explicit lender sign-off in writing prior to application. If a broker or lender tells you to “not worry about recording the second” without explicitly committing to that approach in writing, walk away.

The safe path: disclose the seller second fully, record it properly, and work only with senior DSCR lenders whose programs explicitly allow second-position seller notes.

Seller-Second Documentation Lenders Require

When a senior DSCR lender agrees to allow a seller second, they will require documentation before underwriting can proceed. Expect to provide:

• Executed promissory note: The full seller note, signed by both parties, showing principal amount, interest rate, amortization schedule, balloon date, and payment terms
• Mortgage or deed of trust: The security instrument pledging the property to the seller-lender in second position
• Payment history or seasoning: If the note is being originated concurrently with the senior (which is typical on a purchase), no payment history is needed — but if it is a pre-existing note being assumed, lenders want 12 months of payment history
• Subordination agreement: The executed subordination agreement placing the seller second behind the senior
• CLTV calculation: Lenders will want to confirm the combined balance does not exceed their CLTV cap
• Evidence the note is arm’s-length: On seller seconds between related parties, lenders may require additional documentation confirming terms are market-rate and not gifted equity in disguise

Gather these documents before application. Lenders who encounter incomplete seller-second packages mid-underwriting will either pause the file or decline. We review seller-note term sheets as part of our matching process — bring it to us early.

Worked Example: $1M Property, 75% Senior + 15% Seller Second

Property: $1,000,000 purchase price, single-family investment property Gross rental income: $6,500/month Structure: 75/15/10 stack

Senior DSCR Loan (First Position)

DSCR on senior alone: $6,500 / $5,693 = 1.14 — this clears most lenders’ 1.00–1.10 minimums.

Seller Second (Second Position)

Combined Debt Service Test

Most DSCR lenders that allow seller seconds calculate DSCR on the senior loan’s PITIA only — not on the combined debt service. This is a critical distinction. On the total stack:

If the senior lender calculates DSCR on the combined stack, this deal fails. Confirm the DSCR calculation methodology with the lender before submission. Lenders who accept seller seconds without counting second-position debt service against DSCR are making a deliberate program choice — they exist, but they need to be identified before application.

Cash to Close

Contrast with a conventional 25% down structure on the same property: $250,000 down + $15,000 closing + $34,158 reserves = $299,158. The 75/15/10 stack saves approximately $150,000 in upfront capital on this deal.

Common Mistakes

Silent seconds. The most dangerous mistake. Any seller second that is not disclosed on the closing disclosure and not known to the senior lender is a fraudulent transaction. The risk is not just deal failure — it is criminal exposure.

Balloon timing mismatches. A seller second with a 2-year balloon on a deal that will take 3 years to stabilize creates a forced refinance at the worst moment. Match balloon timing to your hold strategy. A 5-year balloon on a 75% senior LTV property typically gives you enough equity accumulation to refi or sell.

Seller-second payments counted against DSCR. If the lender counts both the senior PITIA and the seller-second payment against the DSCR, a deal that looks like 1.14x collapses to 0.97x and fails. Know this before submitting, not after.

Undisclosed related-party notes. A seller second from a family member, business partner, or affiliated entity requires disclosure and may be treated as gifted equity rather than genuine debt, affecting LTV calculations.

Missing subordination agreement at closing. Title companies occasionally fail to record the subordination agreement at closing. This leaves the seller note senior to the institutional first by operation of law — a title defect. Confirm with the title company that the subordination agreement is part of the closing package.

For a broader look at how creative financing structures work with DSCR, see our comparison of DSCR vs. portfolio vs. blanket loans and our analysis of subject-to refinance strategies. You can run the senior DSCR numbers on your deal using our DSCR calculator before bringing it to us.

Bring us the seller’s term sheet — we’ll structure the senior DSCR around it. We know which lenders in our network accept seller seconds, what their CLTV caps are today, and whether they count the second-position payment against DSCR. Book a strategy call and bring the seller note terms. We can usually tell you within 24 hours which lenders will approve the stack.

Frequently asked questions