DSCR vs Conventional Investment Property Loans: What Is the Difference?
DSCR (Debt Service Coverage Ratio) loans and conventional loans represent fundamentally different approaches to investment property financing. The core difference is the qualification method: conventional loans evaluate the borrower's ability to repay using personal income documentation (W-2s, tax returns, DTI ratio), while DSCR loans evaluate the property's ability to repay using rental income (DSCR = Net Operating Income / Annual Debt Service).
Conventional investment property loans are originated through Fannie Mae and Freddie Mac guidelines, providing standardized underwriting criteria across all lenders. DSCR loans are non-QM (Non-Qualified Mortgage) products where each lender sets their own guidelines, creating wide variability in rates, requirements, and program features. This variability is precisely why wholesale broker access delivers outsized value for DSCR borrowers.
Complete DSCR vs Conventional Comparison (2026)
| Feature | DSCR Loan | Conventional Investment |
|---|---|---|
| Qualification Basis | Property rental income (DSCR ratio) | Borrower personal income (DTI ratio) |
| Income Documentation | None required | W-2s, tax returns (2 years), pay stubs |
| Employment Verification | Not required | Required (verbal VOE before closing) |
| DTI Ratio Requirement | None (property-based) | Max 45-50% (varies by lender) |
| Min. Down Payment | 20-25% | 15-25% |
| Min. Credit Score | 660-680 (varies by lender) | 620-680 |
| Max Financed Properties | Unlimited | 10 (including primary residence) |
| Entity/LLC Vesting | Allowed (most lenders) | Not allowed |
| Interest Rates | Higher (varies by lender) | Lower base rates |
| Mortgage Insurance | Not required | Required if LTV > 80% (rare for invest.) |
| Prepayment Penalties | Common (optional, reduces rate) | Not allowed |
| Closing Timeline | 21-30 days | 30-45 days |
| Reserve Requirements | 6-12 months PITIA | 2-6 months PITIA |
| Loan Terms Available | 30-yr fixed, ARM, interest-only | 30-yr fixed, 15-yr fixed, ARM |
| Short-Term Rental (STR) | Many lenders allow | Rental income must be documented |
| Foreign Nationals | Eligible at many lenders | Not eligible (U.S. income required) |
5 Key Differences Every Investor Must Understand
- 1Documentation burden — Conventional requires 2 years of W-2s, tax returns, pay stubs, and employment verification; DSCR requires none of these
- 2Property count ceiling — Conventional caps at 10 financed properties; DSCR has no limit, enabling unlimited portfolio growth
- 3Entity ownership — Conventional prohibits LLC vesting; DSCR allows LLC, corporate, and trust vesting for liability protection
- 4Rate and cost structure — Conventional offers lower rates but no interest-only options; DSCR offers interest-only and prepayment penalty flexibility
- 5Qualification independence — Each DSCR property qualifies on its own merits; conventional evaluates all properties against the borrower's total DTI
Rates, terms, and requirements vary by lender. Rental income projections are estimates and actual income may vary. This comparison reflects typical market ranges in February 2026.
How Does FHA Fit Into the Investment Property Loan Comparison?
FHA loans are not direct competitors to DSCR or conventional investment property loans because FHA requires owner-occupancy. However, house-hacking investors (buying 2-4 units, living in one, renting the others) use FHA as their entry point. Understanding how all three programs compare helps investors plan their full acquisition strategy from first property to fifteenth.
| Feature | DSCR | Conventional | FHA (Owner-Occ.) |
|---|---|---|---|
| Occupancy | Investment only | Investment only | Must live in 1 unit |
| Min. Down Payment | 20-25% | 15-25% | 3.5% |
| Income Docs | None | Full | Full |
| Mortgage Insurance | None | If LTV >80% | MIP for life of loan |
| Property Limit | Unlimited | 10 | 1 primary |
| Min. Credit Score | 660-680 | 620-680 | 580+ |
| Best For | Portfolio scaling, self-employed | Rate-sensitive W-2 investors | First-time house hackers |
DSCR vs Conventional by Property Type: Single-Family Through 5+ Units
The choice between DSCR and conventional financing is not one-size-fits-all. Different property types have different financing advantages depending on the loan program. Single-family rentals, duplexes, triplexes, fourplexes, small multifamily (5-unit), and condos each present unique qualification and cost scenarios. Understanding how each property type performs under DSCR versus conventional guidelines helps investors optimize their portfolio strategy and capital allocation.
For single-family rentals, conventional offers a clear rate advantage and lower down payment requirements. However, duplexes and triplexes generate multiple income streams that strengthen DSCR ratios, often making DSCR competitive in total cost despite higher rates. Small multifamily (5+ units) and condos introduce additional complexity. Condos face significant conventional restrictions (only 20-30% of a conventional lender's portfolio can be condos), while 5+ unit properties exit the residential market and enter the commercial space, where financing rules change dramatically.
DSCR vs Conventional Financing by Property Type (2026)
| Property Type | DSCR Available | Conventional Available | Max LTV DSCR | Max LTV Conventional | Best Fit |
|---|---|---|---|---|---|
| Single-Family (SFR) | Yes | Yes | 75-80% | 80-85% | Conventional for W-2 investors |
| Duplex (2-Unit) | Yes | Yes | 75-80% | 75-80% | Both competitive; DSCR if no docs |
| Triplex (3-Unit) | Yes | Yes | 75-80% | 75-80% | DSCR if limited docs available |
| Fourplex (4-Unit) | Yes | Yes | 75-80% | 75-80% | DSCR for strong unit income |
| 5+ Unit (Commercial) | Yes (by lender) | No (commercial) | 65-75% | N/A | DSCR only |
| Condo | Yes | Limited (20-30% max) | 75-80% | 70-75% | DSCR for most investors |
The property type analysis reveals critical strategic insights. Single-family rentals remain conventional's stronghold—the lowest rates and highest LTV make conventional the default choice for W-2 borrowers. Multifamily properties (2-4 units) become increasingly favorable for DSCR as the number of units grows, because three or four rental income streams create compelling DSCR ratios that overcome the rate disadvantage. Commercial multifamily (5+ units) exits residential lending entirely, making DSCR the exclusive option. Condos present a special case: conventional lenders severely restrict condo lending (typically 20-30% portfolio caps), forcing most condo investors into DSCR despite lower rates being theoretically available.
Investors considering their first multifamily purchase should evaluate DSCR seriously for duplexes or triplexes, even if conventional documentation is available. The combined rental income from multiple units often results in a DSCR ratio above 1.5, which is strong enough that the rate premium over conventional becomes a negligible factor in the total cost comparison. For self-employed investors or those without clean documentation, DSCR delivers the added benefit of qualification certainty—you know upfront that the property will qualify based on rental income, with no documentation surprises late in the underwriting process.
Rate and Cost Comparison: DSCR vs Conventional Loans in 2026
Interest rates between DSCR and conventional investment property loans vary significantly based on credit score, down payment, loan-to-value ratio, and overall market conditions. In February 2026, the typical rate spread between the two programs ranges from 0.50% to 1.50%, with the average spread hovering around 0.75% to 1.0%. This spread reflects the fundamental risk difference: conventional loans rely on borrower income documentation and personal DTI verification, while DSCR loans rely exclusively on the property's rental income and appraisal-supported value. Understanding current rate tiers helps investors calculate the true cost difference over the 5-year or 10-year holding period.
February 2026 Rate Comparison by Credit Score Tier
| Credit Score Range | DSCR Rate Range | Conventional Rate Range | Typical Spread | DSCR Points | Conventional Points |
|---|---|---|---|---|---|
| 740+ | 7.125% - 7.625% | 6.125% - 6.625% | ~1.0% | 0.5 - 1.0 | 0.0 - 0.5 |
| 700-739 | 7.375% - 7.875% | 6.375% - 6.875% | ~1.0% | 1.0 - 1.5 | 0.5 - 1.0 |
| 660-699 | 7.625% - 8.125% | 6.625% - 7.125% | ~1.0% | 1.5 - 2.0 | 1.0 - 1.5 |
| 620-659 | 8.125% - 8.625% | Limited availability; 7.125%+ | ~1.0% | 2.0 - 2.5 | Overlays apply |
The rate differential remains relatively stable across credit tiers—approximately 1.0 percentage point spread is typical. However, the absolute cost impact varies dramatically based on loan size. On a $500,000 DSCR loan, the 1.0% rate difference equals $5,000 annually in additional interest cost ($41.67 monthly on the $500K balance). Over a 10-year hold, this compounds to $50,000-$60,000 in incremental interest expense. However, for investors who cannot access conventional financing at all (self-employed, 10+ properties, LLC vesting required), the comparison is moot—the alternative is not conventional financing, but no investment property acquisition.
Points and origination fees add another dimension to the rate-cost tradeoff. DSCR lenders typically charge 1.0-2.5 points depending on credit score and rate selected, while conventional lenders charge 0.5-1.5 points. An investor can "buy down" their DSCR rate by paying additional points upfront, reducing the rate spread to 0.75% or even 0.50% in some cases. Wholesale broker access is critical here—comparing 100+ DSCR lenders reveals that some lenders offer aggressive DSCR pricing that rivals conventional rates after points are factored in, especially for borrowers with strong credit (740+) and substantial down payments (30%+).
Portfolio Scaling: When to Switch from Conventional to DSCR
The decision to transition from conventional to DSCR financing is not an arbitrary choice—it follows a predictable pattern as investors scale their portfolios. Understanding this transition point helps investors plan ahead and avoid the common mistake of hitting the conventional 10-property ceiling unexpectedly and losing valuable time in a competitive market.
The conventional 10-property ceiling is absolute and unforgiving. Fannie Mae and Freddie Mac guidelines cap borrowers at 10 financed properties total, including the primary residence. This means a homeowner with a primary residence can finance a maximum of 9 investment properties before hitting the limit. Once the 10-property limit is reached, all subsequent acquisitions must use DSCR, hard money, or non-traditional financing channels.
Sophisticated portfolio investors plan for this transition proactively. The optimal scaling strategy follows this progression: Begin with 4-5 properties financed conventionally to establish a strong foundation at the lowest available rates. Once DTI tightens with properties 5-7, evaluate which properties have the strongest DSCR ratios (multifamily units, properties with high rents relative to PITIA). Refinance those properties from conventional into DSCR financing, freeing up DTI capacity to acquire properties 8-10 conventionally. After reaching the 10-property ceiling, transition exclusively to DSCR for properties 11 and beyond.
This strategy achieves three objectives simultaneously: (1) captures conventional rates for the first 4-5 properties where rates matter most, (2) creates DTI flexibility through refinance-triggered release of earlier properties, and (3) positions the portfolio for unlimited scaling once conventional capacity is exhausted. Investors who neglect this planning often find themselves unable to acquire property #11 and scrambling to refinance multiple properties simultaneously—a costly and time-consuming process.
The property count limit applies strictly: a loan in your personal name counts as 1 property; a loan in your spouse's name counts as a separate 1 property (total 2); a loan in an LLC counts as 1 property toward your total. Married couples can theoretically reach 20 financed properties (10 per spouse), but this strategy requires careful documentation and dual underwriting—and hits complexity limits that make wholesale broker guidance essential.
Refinancing Strategies: DSCR vs Conventional Portfolio Optimization
Refinancing represents a powerful but underutilized lever for portfolio optimization. Investors often hold the same financing for 5-10 years without evaluating whether a rate-and-term refinance, a program switch (conventional to DSCR or vice versa), or a cash-out refinance would improve their overall portfolio returns. Strategic refinancing decisions compound significantly over a 10-20 year portfolio hold.
Conventional to DSCR refinance: When an investor's personal DTI becomes restrictive, refinancing 2-3 earlier conventional properties into DSCR frees up significant DTI capacity on the personal income side. Typically, a conventional property with a $4,000 PITIA payment counts as $4,000 in the debt side of the DTI ratio. When that property is refinanced into DSCR, the payment is removed from personal DTI calculation entirely. An investor with a 48% DTI can convert two conventional properties to DSCR and immediately drop DTI to 42%, creating capacity for one or two new conventional acquisitions at lower rates. The refinance cost (appraisal, title, lender fees) is typically recovered within 2-3 years through the DTI flexibility gain.
DSCR to conventional refinance: When market conditions improve, a DSCR loan with a higher rate (7.5%) and strong DSCR history (36+ months of perfect payment) can refinance into conventional financing at lower rates (6.5%). This occurs when either (1) the borrower's personal income situation strengthens (promotion, spouse adds W-2 income), or (2) the DSCR property's rental income has appreciated sufficiently to support conventional qualification with room in the DTI envelope. The rate savings of 1.0% on a $450,000 loan ($5,000 annually) add up quickly and offset the refinance costs within 12 months.
Strategic rate-and-term refinances within the same program: DSCR lenders vary dramatically on pricing. An investor with a DSCR loan originated at 7.75% with Lender A might qualify for 7.25% with Lender B (same property, same borrower, different lender pricing). A 0.5% rate reduction on a $450,000 balance saves $2,250 annually and recovers $9,000 in refinance costs within 4 years. Rate shopping before every DSCR refinance decision is essential—the difference between the best-priced and worst-priced DSCR lender often exceeds 1.5 percentage points on identical scenarios, creating massive savings opportunities.
Wholesale broker access is transformative for refinance decisions. A broker comparing 100+ lenders can identify (1) whether a conventional-to-DSCR or DSCR-to-conventional refinance makes financial sense, (2) which specific lenders offer the most competitive pricing for the refinanced property's profile, and (3) whether the refinance recovery period is short enough to justify the closing costs and administrative burden. Without wholesale comparison, investors often miss 0.5-1.0% rate savings on refinances—leaving thousands on the table annually.
When Should an Investor Choose DSCR Over Conventional?
The decision between DSCR and conventional is not about which program is objectively better — it is about which program matches the investor's specific financial profile. Here are the scenarios where DSCR is the clear winner:
Self-Employed with High Write-Offs
Business owners who legitimately reduce taxable income through deductions often show low AGI on tax returns. Conventional underwriting uses this low AGI, making qualification difficult or impossible despite strong actual cash flow. DSCR ignores tax returns entirely, solving this problem for millions of self-employed investors.
Portfolio Investors Beyond 10 Properties
Fannie Mae caps conventional investment property financing at 10 financed properties. Once an investor reaches this limit, DSCR becomes the primary financing vehicle for continued portfolio growth. There is no property count limit with DSCR loans, and each property qualifies independently.
DTI Maxed Out Despite Strong Cash Flow
An investor earning $150,000 with $6,000 in existing monthly obligations (including mortgages) has a 48% DTI — near or above conventional limits. Adding another property pushes DTI past the ceiling. DSCR does not calculate DTI at all; the new property qualifies on its own rental income regardless of the investor's other obligations.
Need for LLC/Entity Vesting
Investors who require liability protection through LLC ownership must use DSCR or other non-QM programs. Conventional loans cannot be vested in entities. This is especially important for investors with significant personal assets who want to separate rental property liability from personal assets.
Speed-Dependent Acquisitions
In competitive markets, the 21-30 day DSCR closing timeline (versus 30-45 days for conventional) can make the difference between winning and losing a deal. Sellers prefer faster closings, and DSCR's reduced documentation makes the 21-day timeline achievable rather than aspirational.
When Should an Investor Choose Conventional Over DSCR?
Conventional investment property loans remain the best option for many investors. The lower rates and down payment requirements make conventional financing more cost-effective when the borrower can meet the documentation and DTI requirements.
W-2 Employee with Low DTI
A W-2 employee with a stable income, clean tax returns, and DTI below 45% will almost always get a better rate with conventional financing. The rate savings over a DSCR loan can be significant — reducing annual interest costs by thousands of dollars per property. If you can document income and your DTI allows it, conventional is the lower-cost path.
First 1-4 Investment Properties
Investors in the early stages of portfolio building (1-4 properties) have plenty of capacity under the 10-property conventional limit. Starting with conventional financing preserves lower rates and smaller down payments during the phase when capital efficiency matters most.
Rate Sensitivity Over Flexibility
Investors prioritizing the lowest possible monthly payment over documentation flexibility benefit from conventional's lower rates. The monthly savings compound meaningfully over a 30-year hold. Conventional also offers 15-year fixed options for investors wanting to build equity faster at even lower rates.
Lower Down Payment Available
Conventional investment property loans allow as low as 15% down for single-family investment properties, compared to DSCR's typical 20-25%. For capital-constrained investors, the 5-10% down payment difference translates to tens of thousands of dollars preserved for additional investments or reserves.
How Does the DSCR Formula Compare to Conventional DTI Calculation?
The fundamental difference between DSCR and conventional qualification comes down to what gets measured. DSCR measures the property; DTI measures the person. Understanding both calculations helps investors evaluate which program fits their profile.
DSCR Calculation
DSCR = Rental Income ÷ PITIA
Example:
Monthly Rent: $4,500
Monthly PITIA: $3,600
DSCR = $4,500 ÷ $3,600 = 1.25
Only the subject property matters. Borrower income, employment, and other debts are irrelevant.
Conventional DTI Calculation
DTI = Total Monthly Debts ÷ Gross Income
Example:
Total Monthly Debts: $5,800
Gross Monthly Income: $12,500
DTI = $5,800 ÷ $12,500 = 46.4%
All borrower debts and income are evaluated. Adding properties increases total debts and may push DTI above limits.
The DTI limitation creates a natural ceiling for conventional investors. Each new property adds its full PITIA to the debt side of the equation, while only 75% of projected rental income is added to the income side (per Fannie Mae guidelines). This asymmetric treatment means DTI climbs with every property, eventually hitting the 45-50% ceiling. DSCR has no such ceiling because each property is evaluated in isolation.
What Does a Mixed DSCR and Conventional Portfolio Strategy Look Like?
The most sophisticated investors do not choose exclusively between DSCR and conventional. They use both programs strategically at different stages of portfolio growth. Here is a common portfolio progression:
- 1
Properties 1-4: Conventional
Use conventional financing for the first 4 investment properties. Benefit from the lowest available rates, 15-20% down payments, and straightforward underwriting. DTI remains manageable with W-2 income supporting 4 investment property mortgages.
- 2
Properties 5-10: Mixed Conventional + DSCR
As DTI tightens with properties 5-10, use conventional where DTI allows and switch to DSCR when DTI exceeds conventional limits. This hybrid approach captures conventional rates when possible and uses DSCR flexibility when needed.
- 3
Properties 11+: DSCR Exclusively
After reaching the 10-property conventional limit, all new acquisitions use DSCR financing. Each property qualifies independently, and there is no ceiling on portfolio growth. LLC vesting becomes the standard for liability protection at this scale.
- 4
Portfolio Optimization: Refinance Review
Periodically review the entire portfolio with your wholesale broker to identify refinance opportunities. Earlier DSCR loans with higher rates may benefit from rate-and-term refinances as market conditions change or as the borrower's profile strengthens.
Cost Comparison: DSCR vs Conventional Over 5 and 10 Years
The true cost difference between DSCR and conventional financing extends beyond the interest rate. Down payment size, reserves, prepayment penalties, closing costs, and opportunity cost of capital all factor into the total cost comparison. The following scenarios illustrate how the numbers play out. Rates vary by lender; these examples use illustrative figures for comparison purposes only.
Illustrative Cost Comparison: $600,000 Single-Family Rental
| Cost Factor | DSCR Loan | Conventional | Difference |
|---|---|---|---|
| Down Payment | $150,000 (25%) | $120,000 (20%) | $30,000 more for DSCR |
| Loan Amount | $450,000 | $480,000 | $30,000 less with DSCR |
| Reserve Requirement | ~$28,800 (8 mo.) | ~$10,800 (3 mo.) | $18,000 more for DSCR |
| Total Capital Required | ~$190,000 | ~$142,000 | $48,000 more for DSCR |
| Documentation Time | Minimal (1-2 hours) | Extensive (5-10 hours) | DSCR saves significant time |
| LLC Vesting | Available | Not available | DSCR provides liability protection |
Important Cost Consideration
The rate differential between DSCR and conventional represents an ongoing annual cost. However, for investors who cannot qualify for conventional financing (self-employed, high DTI, 10+ properties), the comparison is irrelevant — DSCR is the only viable option. The real cost analysis for these investors is DSCR versus not investing at all, and the return on investment from a well-chosen rental property typically far exceeds the incremental financing cost.
Real-World Investor Scenarios: Which Loan Wins?
Scenario 1: W-2 Tech Worker, First Investment Property
Winner: Conventional
Strong W-2 income, clean documentation, high credit score, and well below the 10-property limit. Conventional financing delivers the lowest rate and smallest down payment. DSCR would work but costs more without providing meaningful benefit.
Scenario 2: Self-Employed Contractor, 3rd Rental Property
Winner: DSCR
Despite $280K in actual gross income, tax returns show only $65K after business deductions. Conventional DTI calculation uses the $65K, making approval extremely difficult with 3 existing mortgages. DSCR ignores the tax returns entirely and qualifies based on the new property's rental income.
Scenario 3: Portfolio Investor, 12th Property Acquisition
Winner: DSCR (only option)
With 11 financed properties, this investor has exceeded the 10-property conventional limit. DSCR is the only mainstream option for property #12. The investor can qualify based on the new property's rental income without impacting their existing conventional loans.
Scenario 4: Foreign National, First U.S. Investment
Winner: DSCR (only option)
Foreign nationals without U.S. tax returns, employment, or credit history cannot qualify for conventional financing. DSCR loans with foreign national programs accept international credit references and require no U.S. income documentation. Higher down payments (30-40%) offset the lack of U.S. credit history.
People Also Ask: DSCR vs Conventional Investment Property Loans
Can I use both DSCR and conventional loans in my portfolio?
Yes, combining DSCR and conventional loans is the most common strategy for portfolio investors scaling beyond 4-5 properties. Use conventional where DTI permits for the lowest rates, and switch to DSCR when DTI becomes restrictive or after reaching 10 financed properties.
Does a DSCR loan affect my ability to get a conventional loan later?
DSCR loans report to credit bureaus and count toward your financed property total for conventional underwriting purposes. However, the DSCR loan's payment can be offset by the property's rental income when calculating DTI for future conventional applications, so the net impact on DTI is often minimal.
Which loan has a lower down payment for investment properties?
Conventional investment property loans offer lower minimum down payments (15-20%) compared to DSCR loans (20-25% typical). However, some DSCR lenders offer 15% down programs for borrowers with strong credit (740+) and DSCR ratios above 1.25, narrowing the gap for qualified investors.
Are DSCR loans considered riskier than conventional?
DSCR loans carry different risk characteristics, not necessarily higher risk, because the property's rental income directly supports the payment. The reduced documentation means less borrower verification, but the property's cash flow provides a tangible repayment source that conventional DTI-based qualification does not inherently guarantee.
Can I refinance from conventional to DSCR?
Yes, refinancing from conventional to DSCR is common for investors who want to free up DTI capacity for additional conventional loans on new properties. Moving existing properties to DSCR removes their payment from your personal DTI calculation, creating room for additional conventional financing.
Which program is better for multifamily 2-4 unit properties?
Both programs finance 2-4 unit properties, but DSCR is often advantageous because multi-unit properties generate higher combined rental income, producing stronger DSCR ratios. Conventional 2-4 unit investment properties require larger down payments (25%) and face stricter DTI scrutiny. DSCR evaluates all unit rents collectively against the single PITIA payment.
Why does a wholesale broker matter more for DSCR than conventional?
Conventional loan rates and guidelines are standardized through Fannie Mae and Freddie Mac, creating relatively narrow rate variability between lenders. DSCR programs are set by each individual lender, creating massive rate and requirement variability. The spread between the best and worst DSCR lender for the same scenario can exceed 1.5 percentage points, making wholesale comparison essential.
Frequently Asked Questions: DSCR vs Conventional Investment Property Loans
Which is better for investment property: DSCR or conventional?
Neither is universally better. Conventional loans offer lower interest rates and down payments for W-2 borrowers with strong DTI ratios and fewer than 10 financed properties. DSCR loans eliminate income documentation requirements and property count limits, making them superior for self-employed investors, portfolio builders, and anyone who cannot document income through traditional channels. The best choice depends on your specific financial profile and investment strategy.
Are DSCR loan rates higher than conventional investment property rates?
Yes, DSCR rates are typically higher than conventional investment property rates because DSCR loans are non-QM products with reduced documentation. The rate differential varies by lender and borrower profile. Wholesale broker access is essential for minimizing this gap by comparing rates across 100+ DSCR lenders to find the most competitive pricing for your scenario.
Can I switch from a DSCR loan to a conventional loan later?
Yes. Investors can refinance from a DSCR loan into a conventional mortgage if they meet full documentation requirements, have a DTI ratio within conventional guidelines (typically 45-50%), and have fewer than 10 financed properties. This strategy is common for investors who initially needed DSCR flexibility but later want to capture lower conventional rates.
How many investment properties can I finance with conventional vs DSCR?
Conventional financing caps investors at 10 financed properties total (including primary residence). DSCR loans have no limit on the number of financed properties. Investors who hit the conventional 10-property ceiling transition to DSCR for subsequent acquisitions. Each DSCR property qualifies independently based on its own rental income.
Do both DSCR and conventional loans require an appraisal?
Yes, both require full appraisals. DSCR appraisals include a 1007 rent schedule (Form 1025 for 2-4 units) that determines market rent, which is used to calculate the DSCR ratio. Conventional investment property appraisals also assess value but don't always require a formal rent schedule unless rental income is being used for DTI qualification.
Can I use a conventional loan for a property in an LLC?
No. Fannie Mae and Freddie Mac require conventional loans to be in the individual borrower's name, not an LLC or other entity. DSCR loans allow entity vesting (LLC, corporation, trust), which provides liability protection and potential tax benefits. Investors who need LLC vesting must use DSCR or other non-QM programs.
Which loan is faster to close: DSCR or conventional?
DSCR loans typically close in 21-30 days, compared to 30-45 days for conventional investment property loans. The faster DSCR timeline results from eliminated income documentation—no W-2 verification, no tax return review, and no employment confirmation. This speed advantage can be decisive in competitive purchase situations.
Do I need reserves for both DSCR and conventional investment property loans?
Yes, both require reserves. DSCR loans typically require 6-12 months of PITIA reserves. Conventional investment property loans require 2-6 months of reserves. Conventional lenders may also require reserves for each additional financed property (2 months per property for 5-10 properties). Reserve requirements vary by lender and scenario.
Can I get a DSCR loan and a conventional loan at the same time?
Yes. Many investors use a mixed financing strategy—conventional loans for their first several properties (lower rates, lower down payment) and DSCR loans when they exceed conventional limits or when personal DTI becomes restrictive. There is no rule preventing borrowers from holding both loan types simultaneously.
Is there a minimum credit score difference between DSCR and conventional?
Conventional investment property loans typically require 620-680 minimum credit scores through Fannie Mae/Freddie Mac guidelines. DSCR loan minimums range from 620 to 700 depending on the lender, with most requiring 660-680. The credit score impact on rate pricing is generally larger for DSCR loans because each lender sets their own pricing matrix.
What is the DSCR formula and how does it differ from DTI?
The DSCR formula is: Net Operating Income / Annual Debt Service. For residential properties, this simplifies to Monthly Rental Income / Monthly PITIA. DTI (Debt-to-Income) ratio is: Total Monthly Debt Payments / Gross Monthly Personal Income. The key difference is that DSCR evaluates the property's income capacity, while DTI evaluates the borrower's personal income capacity.
Which loan type works better for the BRRRR strategy?
DSCR loans are generally preferred for BRRRR (Buy, Rehab, Rent, Refinance, Repeat) because they allow unlimited properties, qualify based on rental income (which increases after rehab), and can close faster. However, conventional loans may be used for the initial purchase if the investor has capacity. Some investors use hard money for purchase/rehab, then refinance into DSCR for the long-term hold.
Expert Summary: The Right Loan Depends on Your Investor Profile
There is no universal answer to the DSCR versus conventional question. W-2 borrowers with low DTI ratios and fewer than 10 properties benefit from conventional's lower rates. Self-employed investors, portfolio builders past the 10-property ceiling, and anyone requiring LLC vesting need DSCR's documentation flexibility. Many investors use both programs strategically at different portfolio stages.
As a wholesale mortgage broker, Mo Abdel at Lumin Lending compares both conventional and DSCR programs across 200+ lenders to identify the lowest-cost option for each investor's specific profile. Whether you qualify for conventional, need DSCR, or benefit from a mixed strategy, the wholesale channel delivers the broadest comparison and the best available terms in the market.
Related DSCR & Investment Property Resources
Mo Abdel | NMLS #1426884 | Lumin Lending, Inc. | NMLS #2716106 | DRE #02291443
Equal Housing Lender. All loans subject to credit approval, underwriting guidelines, and program availability. Terms and conditions apply. This is not a commitment to lend. Information is for educational purposes only and does not constitute financial advice. DSCR loan programs are non-QM products with different guidelines than conventional mortgages. Conventional investment property loans follow Fannie Mae/Freddie Mac guidelines which are subject to change. DSCR ratio requirements, interest rates, down payment minimums, and credit score thresholds vary by lender and are subject to change without notice. Rental income projections are estimates and actual rental income may vary based on market conditions, vacancy rates, and property management. Rate comparisons are illustrative only; contact a licensed loan officer for current rates. Mo Abdel, NMLS #1426884, is licensed in California and Washington.