DSCR Loan vs Conventional Loan for an Investment Property
By Travis Penny, mortgage broker ·
I'm Travis Penny. I started in 2004 and I'm still here, and I arrange both conventional investment loans and DSCR loans, so I have no reason to push one over the other. If you have a property you are weighing in mind, text me at (207) 615-7770 or send the address and the rent through my contact page.
A conventional investment property loan qualifies you on your personal income, tax returns and debt to income ratio. A DSCR loan qualifies the property on its own rent against its full payment. Neither is automatically better. It depends on your income documentation, how many rentals you already have and how the specific property performs.
How conventional investment property loans work
A conventional loan on a rental looks at your personal income, employment, tax returns and existing debts, the same underwriting approach used for a primary home loan, adjusted for investment property requirements. Your debt to income ratio includes the new rental payment, offset in part by a portion of the expected rental income depending on the program.
How DSCR loans work
A DSCR loan skips personal income documentation. It compares the property's documented rent, a signed lease or the appraiser's market rent, against the full monthly payment including principal, interest, taxes, insurance and association dues. My DSCR calculator shows you that comparison for any rental before you pick a loan type. My DSCR loan requirements guide walks through credit, reserves, and the appraisal rent estimate, and how DSCR loans work in an LLC explains the entity side. Credit and reserves are still reviewed, but your personal tax returns generally are not part of the file.
Side by side
| Conventional Investment Property Loan | DSCR Loan | |
|---|---|---|
| Qualifies on | Personal income, tax returns, debt to income ratio | The property's documented rent |
| Personal tax returns | Usually required | Generally not required |
| Best for | Clients with straightforward, strong personal income | Clients with complex income, or those scaling a rental portfolio |
| Entity | Personal name (LLC options vary by program) | LLC or personal name in most states, LLC or corporation required in Georgia and Virginia |
| Property types | Standard investment property guidelines | 1 to 9 unit rentals, condos, and, program by program, short term rentals |
When does conventional make more sense?
If your personal income is strong, well documented and you are not adding many rentals, a conventional investment property loan can be the simpler and often more cost effective path. It is worth comparing both before you decide.
When a DSCR loan makes more sense
If your tax returns understate your income, you are self employed with complex documentation, or you are growing a portfolio and do not want each new purchase judged against your personal debt to income ratio, a DSCR loan is usually the better fit. Read more on the general tradeoffs in DSCR loan pros and cons, or start at my DSCR loans hub.
Have a rental you are weighing in mind? Send me the address and the expected rent through my contact page, or call or text me at (207) 615-7770. I'll run the numbers and tell you plainly whether a DSCR loan fits. Started in 2004 and I'm still here.
FAQ
- What is the main difference between a DSCR loan and a conventional investment property loan?
- A conventional loan qualifies you on personal income, tax returns, and debt to income ratio. A DSCR loan qualifies the property on its documented rent against its full payment.
- Which one is cheaper?
- It depends on the program, the property, and your credit and reserves. Call or text me and I can compare both for your specific situation.
- Do I need to show tax returns for a DSCR loan?
- Generally not. The property's rent is what drives the qualification, though credit and reserves are still reviewed.
- Can I use a DSCR loan if I already qualify for a conventional loan?
- Yes. Some clients prefer a DSCR loan even when they could qualify conventionally, especially when they are scaling a portfolio and do not want each purchase judged against their personal debt to income ratio.
- Which entity can I close in?
- For a DSCR loan, an LLC or your personal name in most states I cover, with Georgia and Virginia requiring an LLC or corporation. Conventional investment property loan entity options vary by program.
Does the rent cover the payment?
Enter the rent and the full monthly payment to see the DSCR on a property before you make an offer.
Run your numbersTalk with Travis about your options
Call or text me at (207) 615-7770 or email Travis@travis.mortgage. You can also start on my call or text travis page.