| DSCR loan | Conventional investment loan | |
|---|---|---|
| Income test | Property's rent vs. its payment | Your personal income vs. all your debts (DTI) |
| Documents | Lease or appraiser's rent, credit, reserves, entity docs if any | Two years of tax returns, W-2s or full self-employed docs, all mortgage statements |
| Self-employed with write-offs | Irrelevant — the return is not read | Qualifies on the net after write-offs, averaged |
| Title in an LLC | Yes, on most programs | Generally no — individual borrower |
| Number of financed properties | Built for investors with several | Capped by agency rules |
| Short-term rental income | Counted on some programs | Generally long-term rent only, with your own history |
| Prepayment penalty | Common in the first years, varies by state | None |
| Pricing | Typically above conventional | Lower, when you qualify |
| Down payment on a purchase | Larger than owner-occupied; set by program | Investor minimums set by agency rules |
| Speed | Often faster — less to document | Depends on how quickly your income can be verified |
When conventional wins
A W-2 earner with clean returns, few mortgages and a long-term rental in their own name should price a conventional loan first. The rate is better, there is no prepayment penalty, and the paperwork, while heavier, is paperwork they have. DSCR would cost more for a flexibility they do not need.
When DSCR wins
- The returns do not support the loan, or you would rather not provide them
- You are at or past the agency limit on financed properties
- You want the LLC on title
- The property is a short-term rental and its booking income is what makes it work
- Your debt-to-income ratio is already full from the last few properties
- Speed matters and the personal-income file would slow the closing
What "typically above conventional" means for you
It means a higher payment on the same loan, which also means a lower ratio — the DSCR loan's own pricing is part of the payment it has to clear. On a thin deal, that is the difference. On a deal with real cash flow, it is the cost of leaving your income out of the file and closing in the entity, and most investors judge it worth paying. No rate is published here because a published rate is wrong tomorrow; a call gets you the current one for your file.
Common questions
Is a DSCR loan always more expensive?
Pricing typically runs above conventional, and most programs carry a prepayment penalty. For a borrower who qualifies conventionally, conventional is usually cheaper.
Can I use conventional on some properties and DSCR on others?
Yes. Many investors use conventional until the agency limits or their returns stop it, then DSCR after.
Why can't a conventional loan close in my LLC?
Agency rules generally require an individual borrower on title. Business-purpose loans like DSCR do not.
Which is faster?
DSCR usually, because there is less to document. A conventional file moves at the speed of your income verification.