DSCR vs Conventional Loans — Which Is Right for Your Rental Property?

The Core Difference

The fundamental distinction between DSCR and conventional loans is what gets underwritten. Conventional loans underwrite the borrower - your personal income, employment history, debt-to-income ratio, and tax returns determine approval. DSCR loans underwrite the property - the rental income relative to the mortgage payment determines approval, regardless of your personal financial situation.

This single difference creates cascading effects on qualification speed, documentation requirements, portfolio scalability, cost, and which investors benefit most from each option.

Side-by-Side Comparison

Feature	DSCR Loan	Conventional Loan
Qualification basis	Property rental income	Borrower personal income
Tax returns required	No	Yes (2 years)
Employment verification	No	Yes
DTI ratio limit	None	43-50%
Interest rates	7.0 - 9.5%	6.0 - 7.5%
Down payment	20 - 30%	15 - 25%
Max financed properties	Unlimited	10 (Fannie Mae limit)
Closing speed	21 - 30 days	30 - 45 days
LLC ownership	Yes (standard)	No (personal name only)
Prepayment penalty	Usually (1-5 years)	None
Minimum credit score	660+	620+
Best for	Self-employed, scaling investors	W-2 employees, first properties

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When to Choose a DSCR Loan

DSCR loans are the better choice in several specific situations. Understanding when the higher cost is justified can save you significant time and open opportunities that conventional financing simply cannot.

You're self-employed or have complex tax returns

If your tax strategy involves maximizing deductions (as most good CPAs recommend for investors), your adjusted gross income on paper may be too low to qualify for a conventional loan - even though your actual cash flow is strong. DSCR loans bypass this entirely.

You already own 5-10+ financed properties

Fannie Mae limits conventional financing to 10 properties. After that, you need portfolio loans, commercial loans, or DSCR. For investors scaling beyond 10, DSCR becomes the primary tool - there's no property count limit.

You want to hold in an LLC

Conventional loans must be in your personal name. Many investors prefer LLC ownership for liability protection. DSCR loans close directly in the LLC, avoiding the post-closing transfer and due-on-sale risk.

You need to close fast

With no income verification or employment checks, DSCR underwriting is simpler. Many DSCR loans close in 21-25 days versus 30-45 for conventional, which can make the difference in a competitive market.

When to Choose a Conventional Loan

Conventional loans are cheaper. Period. If you qualify, the lower rate and absence of prepayment penalties can save tens of thousands over the life of the loan. Choose conventional when:

You have strong W-2 income and low DTI

If your personal income easily supports the additional mortgage payment and your DTI stays under 43-45%, conventional financing will give you a significantly lower rate - often 1-2% less than DSCR.

You own fewer than 10 financed properties

Until you hit the Fannie Mae limit, conventional loans are available with better pricing. Use DSCR for properties 11 and beyond, or when conventional underwriting becomes too cumbersome.

You want no prepayment penalty

If you plan to sell or refinance within 1-3 years, conventional loans have no prepayment penalty. DSCR prepay penalties can cost 1-5% of the loan balance if you pay off early.

Investor Tip

Many experienced investors use both loan types strategically. They fill their conventional "slots" first (properties 1-10 at lower rates), then switch to DSCR for properties 11+. Some also use DSCR for their first few acquisitions when they need speed or LLC ownership, then refinance into conventional later if rates improve.

The Cost Difference in Real Numbers

Let's make the rate difference concrete. On a $300,000 loan at 30 years:

Metric	DSCR (7.5%)	Conventional (6.5%)	Difference
Monthly P&I	$2,098	$1,896	$202/month
Annual cost	$25,176	$22,752	$2,424/year
Total interest (30yr)	$455,280	$382,560	$72,720 more

That's roughly $200/month more with DSCR. For many investors, this premium is worth it because DSCR gets them into the deal in the first place - a deal that generates $200-500/month in cash flow they wouldn't have otherwise. The right question isn't "which loan is cheaper?" but "which loan lets me close this profitable deal?"

Run Your Own Numbers

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