DSCR loan vs. conventional investment loan: which is better?
The short answer
Conventional investment loans usually have lower rates, but they require full tax returns, count against your debt-to-income, and cap most investors at 10 financed properties. DSCR loans cost more but qualify on the property's rent alone. The Mortgage Advisory offers both and will compare them side by side for your situation.
How do they compare?
| Conventional investment loan | DSCR loan | |
|---|---|---|
| Qualify on | Your personal income and debt-to-income | The property's rent |
| Documents | Tax returns, W-2s or business returns | Lease or rent estimate; no tax returns |
| Rate | Usually lower | Usually higher |
| Down payment | About 15% to 25% | About 20% to 25% |
| Property limit | Most investors capped at 10 financed properties | No set limit at most lenders |
| LLC ownership | Generally not at closing | Usually allowed |
| Prepayment penalty | None | Common |
When is conventional better?
- Your income is easy to document and your debt-to-income has room
- You want the lowest rate and no prepayment penalty
- You have fewer than 10 financed properties
When is DSCR better?
- Your tax returns understate your income (lots of write-offs)
- Your debt-to-income is maxed out from other properties
- You've hit or are near the 10-property limit
- You want to close in an LLC
- You want a faster, simpler file with less paperwork
Our take
Many of my investors use both: conventional loans for their first few rentals while their debt-to-income allows, then DSCR as the portfolio grows. I'll run both on your next property and show you the real difference in rate and payment.
Ace Ausar, Mortgage Banker · NMLS #1143018
The Mortgage Advisory, Inc. · NMLS #1549739
Reviewed by Ace Ausar, NMLS #1143018 · Updated
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