DSCR Loan vs Conventional Mortgage for Investors

What is the difference between a DSCR loan and a conventional loan?

Choosing between a DSCR loan and a conventional mortgage is one of the most important financing decisions a real estate investor can make. Both loan types can fund investment properties, but they differ dramatically in how they qualify borrowers, how they are structured, and who they serve best.

A DSCR (Debt Service Coverage Ratio) loan qualifies borrowers based on the rental income of the property itself, not on personal income, W-2s, or tax returns. Lenders calculate the DSCR by dividing the property's gross rental income by its total debt obligations (principal, interest, taxes, insurance, and HOA fees). If the property generates enough income to cover its debt, you qualify.

A conventional mortgage, backed by Fannie Mae or Freddie Mac guidelines, takes a completely different approach. The lender evaluates your personal financial picture, including your income, employment history, tax returns, debt-to-income ratio (DTI), and overall creditworthiness. The property's rental income may help your application, but it is not the primary factor.

This fundamental difference creates a cascade of practical distinctions that affect everything from closing timelines to portfolio scalability. For investors who are self-employed, have complex tax situations, or own multiple properties, DSCR loans can open doors that conventional financing cannot.

Explore our DSCR loan programs to see how property-based qualification works in practice, or compare conventional loan options for your next investment.

Ready to find out which loan type fits your investment strategy? Contact our team today for a personalized comparison based on your portfolio and goals.

How does the qualification process differ between DSCR and conventional loans?

The qualification process is where the rubber meets the road, and where these two loan types diverge most sharply.

DSCR loan qualification

With a DSCR loan, the lender focuses almost entirely on the investment property's ability to generate income. Here is what the process looks like:

1. Property income analysis - The lender reviews the property's current or projected rental income, often using a third-party rent schedule or an appraisal with a rental survey.
2. DSCR calculation - The lender divides the monthly rental income by the monthly debt service (PITIA). A DSCR of 1.25 or higher typically unlocks the best rates and terms. A DSCR of 1.00 means the property breaks even, and some lenders offer "no-ratio" programs that go even lower.
3. Credit check - While personal income is not verified, your credit score still matters. Most lenders require a minimum FICO of 660, with 740+ unlocking the best pricing and highest LTV options.
4. Down payment and reserves - Expect to put down 20-25% and show 3-6 months of reserves.

Conventional loan qualification

Conventional investment property loans require full documentation of your personal finances:

1. Income verification - Two years of tax returns, W-2s, and pay stubs. Self-employed borrowers need two years of business tax returns.
2. DTI calculation - Your total monthly debts (including the new mortgage) cannot exceed 43-50% of your gross monthly income.
3. Employment history - Lenders want to see stable employment for at least two years.
4. Credit check - Minimum credit scores typically range from 620-680 for investment properties, with 740+ getting the best rates.
5. Down payment - A minimum of 15% down for a single-unit investment property, though 20-25% is standard for the best terms.

The key takeaway: DSCR loans evaluate the deal, while conventional loans evaluate the borrower. This distinction matters enormously for investors who write off heavy depreciation, reinvest profits, or have income that is difficult to document through traditional channels.

Use our DSCR calculator to see if your property's income meets lender requirements before you apply.

What credit score do you need for a DSCR loan vs conventional?

Credit score requirements overlap between the two loan types, but the impact of your score on terms and pricing differs significantly.

For DSCR loans, credit score tiers typically work as follows in 2026:

• 740+ FICO: Maximum LTV (up to 80%), lowest interest rates, and the widest range of program options. Some lenders offer up to 85% LTV for borrowers in this tier.
• 700-739 FICO: Competitive rates with up to 75-80% LTV. Most standard programs are available.
• 660-699 FICO: Higher rates (typically 0.5-1% above top-tier pricing) and lower maximum LTV (70-75%). Fewer program options.
• 620-659 FICO: Limited availability. Expect significantly higher rates, 65-70% maximum LTV, and stronger reserve requirements.

For conventional investment property loans, the credit score landscape looks like this:

• 740+ FICO: Best available rates and standard 15-20% down payment options.
• 700-739 FICO: Slightly higher rates but still competitive. Standard programs available.
• 680-699 FICO: Rate adjustments increase. May need 25% down for multi-unit properties.
• 620-679 FICO: Meeting the minimum threshold, but expect higher rates and potential additional requirements. Some lenders may require compensating factors.

One critical difference: with conventional loans, your credit score interacts with your DTI ratio and income documentation. A borrower with a 740 credit score but high DTI may still face challenges. With DSCR loans, a strong credit score combined with a high-DSCR property can overcome other weaknesses in your borrower profile.

According to Defy Mortgage's 2026 DSCR guide, the average DSCR loan borrower has a credit score between 700 and 750, while conventional investment property borrowers tend to cluster in the 720-760 range.

Are DSCR loan rates higher than conventional mortgage rates?

Yes, DSCR loan rates are generally higher than conventional mortgage rates for investment properties, but the gap has narrowed significantly heading into 2026.

As of February 2026, here is how the rate landscape breaks down:

• Conventional 30-year fixed (primary residence): Approximately 6.11% average, according to Freddie Mac's Primary Mortgage Market Survey.
• Conventional 30-year fixed (investment property): Approximately 6.60-7.10%, reflecting the 0.50-1.00% premium lenders charge for investment properties.
• DSCR 30-year fixed: Approximately 6.12-7.50%, depending on credit score, LTV, and DSCR ratio. Top-tier borrowers (740+ FICO, DSCR 1.25+, 75% LTV) can access rates in the low 6% range.

The rate premium for DSCR loans over conventional investment property loans typically ranges from 0.25% to 1.00%. This premium compensates the lender for the additional risk of not verifying personal income.

However, rate is only part of the cost equation. Consider these factors:

• Prepayment penalties: Most DSCR loans include a prepayment penalty (commonly 3-2-1 or 5-4-3-2-1 step-down structures), while conventional loans typically have none.
• Origination fees: DSCR loans may carry higher origination fees (1-2 points) compared to conventional loans (0.5-1 point).
• Closing timeline: DSCR loans often close faster (2-3 weeks vs. 4-6 weeks for conventional), which can help you win competitive deals.
• Opportunity cost: The time spent gathering income documentation for conventional loans has a real cost, especially for busy investors managing multiple properties.

For a detailed rate comparison based on your specific scenario, reach out to our lending team for a side-by-side quote on both loan types.

Can you use a DSCR loan for a primary residence?

No. DSCR loans are exclusively for investment properties. This is a firm rule across the industry, not a guideline that varies by lender.

The reason is straightforward: DSCR loans qualify borrowers based on a property's rental income. A primary residence, by definition, is not generating rental income for the borrower. The entire underwriting framework of a DSCR loan, built around the debt service coverage ratio, simply does not apply to owner-occupied properties.

Conventional mortgages, on the other hand, can finance:

• Primary residences - Your main home where you live most of the year. This is where conventional loans offer the best rates and lowest down payments (as low as 3-5%).
• Second homes/vacation properties - A home you occupy part of the year that is not your primary residence. Down payments start at 10%.
• Investment properties - Properties purchased specifically to generate rental income or for resale. Down payments start at 15-20%.

This flexibility is a major advantage of conventional financing for investors who also need to finance their own home. You can use one conventional loan for your primary residence (with the best possible terms) and then decide between conventional and DSCR financing for your investment properties.

Some investors use a creative but legitimate strategy: they purchase a multi-unit property (2-4 units) as their primary residence using a conventional loan, live in one unit, and rent out the remaining units. After living in the property for at least one year, they move out and convert it to a full rental property.

For investors who are just getting started, our guide on how to get a commercial loan with no experience covers additional strategies for building your portfolio from the ground up.

How many properties can you finance with DSCR vs conventional?

This is one of the most significant differences between DSCR and conventional financing, and it becomes increasingly important as your portfolio grows.

Conventional loan property limits

Fannie Mae and Freddie Mac impose a strict cap of 10 financed properties per borrower. This limit counts all properties with outstanding mortgages, including your primary residence. So if you own your home with a mortgage and have 9 investment properties financed, you have hit the ceiling.

Additionally, once you have 5-10 financed properties, qualification becomes significantly harder:

• Higher credit score requirements (720+ for 7-10 properties)
• Larger reserve requirements (6 months PITIA per property)
• More extensive documentation
• Fewer lenders willing to underwrite the loan

DSCR loan property limits

DSCR loans have no standardized limit on the number of financed properties. Since each property is evaluated on its own income-generating ability, you can theoretically finance an unlimited number of properties as long as each deal meets the lender's DSCR, LTV, and credit requirements.

In practice, some DSCR lenders may implement internal portfolio limits once you reach 15-20 properties, but many portfolio and private lenders will continue lending well beyond that threshold. The key factor is not the number of properties you own, but whether each individual property performs well enough to support its debt.

This scalability advantage is why experienced investors with growing portfolios often transition from conventional to DSCR financing once they approach the conventional property limit. Learn more about DSCR loan requirements to understand what lenders look for as you scale.

Want to scale your investment portfolio beyond conventional limits? Talk to our team about DSCR financing strategies for multi-property investors.

Which is better for real estate investors: DSCR or conventional?

The honest answer: it depends on your specific situation, portfolio size, and investment strategy. Neither loan type is universally superior. Here is a framework for deciding.

When conventional loans make more sense

• You have strong W-2 income and can easily document it
• You own fewer than 5 investment properties and have room under the conventional property cap
• Rate sensitivity is your top priority, and you want the lowest possible interest rate
• You are buying your first investment property and want the simplest, most straightforward process
• The property does not yet have rental income (new construction or major renovation before tenants move in)

When DSCR loans make more sense

• You are self-employed or have complex income that is difficult to document through tax returns
• You already have 5+ financed properties and need to scale beyond conventional limits
• The property has strong rental income with a DSCR of 1.25 or higher
• Speed matters, and you need to close quickly to secure a competitive deal
• You take significant depreciation deductions that reduce your taxable income below what conventional lenders require
• You want to keep your personal DTI low for future conventional borrowing on other properties

Many sophisticated investors use both loan types strategically. They might reserve their conventional financing capacity for primary residences and properties with the tightest margins (where the lower rate makes the biggest difference), while using DSCR loans for strong cash-flowing properties and portfolio expansion beyond the 10-property conventional limit.

Use our commercial mortgage calculator to compare monthly payments and total costs for both loan types side by side.

What are the down payment differences between DSCR and conventional?

Down payment requirements are comparable between the two loan types for investment properties, but the details matter.

For conventional investment property loans in 2026:

• Single-unit property: 15% minimum (some lenders require 20%)
• 2-4 unit property: 25% minimum
• 2026 conforming loan limit: $832,750 for single-unit properties in most areas, up to $1,249,125 in high-cost markets, according to Fannie Mae's 2026 loan limits
• Loans above conforming limits require jumbo financing with higher down payments (typically 25-30%)

For DSCR loans in 2026:

• Standard programs: 20-25% down payment
• High-DSCR properties (1.25+) with 740+ FICO: Some lenders offer 15-20% down
• No loan amount cap: Unlike conventional loans, DSCR loans are not subject to conforming loan limits, making them ideal for higher-value properties
• Lower DSCR or lower credit scores: May require 25-30% down

A key advantage of DSCR loans is that they are not constrained by conforming loan limits. If you are purchasing a $1.5 million investment property, a conventional loan would require jumbo financing with stricter terms. A DSCR loan simply evaluates the property's income relative to the debt, regardless of the loan amount.

How should investors think about closing timelines and documentation?

The closing process reveals another practical difference between these loan types that can impact your ability to compete for deals.

DSCR loan closing timeline

• Typical timeline: 2-3 weeks from application to closing
• Documentation required: Credit report, property appraisal with rent schedule, bank statements (for reserves), entity documents (if purchasing in an LLC), and insurance
• What is NOT required: Tax returns, W-2s, pay stubs, employment verification, or income documentation

Conventional loan closing timeline

• Typical timeline: 4-6 weeks from application to closing
• Documentation required: Everything listed for DSCR loans, plus 2 years of tax returns, W-2s or 1099s, pay stubs, employment verification, explanation of any income gaps, and full personal financial statements
• Additional complexity: If you own multiple properties, the lender must verify income and expenses for each existing property, adding time and paperwork

The documentation difference is substantial. For a DSCR loan, you might submit 20-30 pages of documents. For a conventional investment property loan, the file can easily exceed 100 pages, especially for self-employed borrowers or those with multiple properties.

This lighter documentation load also means fewer opportunities for the loan to stall or be denied mid-process due to income calculation issues, which is a common frustration with conventional investment property loans.

What are the most common questions about DSCR loans vs conventional mortgages?

Can I refinance from a conventional loan to a DSCR loan?

Yes. Many investors refinance existing conventional mortgages into DSCR loans, especially when they want to free up their conventional borrowing capacity for new purchases or when their tax situation makes it difficult to qualify for a conventional refinance. The property needs to meet DSCR requirements at the time of refinancing.

Do DSCR loans require an appraisal?

Yes. DSCR loans require a full appraisal that includes a rental survey or rent schedule. The appraiser will determine both the property's market value and its fair market rent, which the lender uses to calculate the DSCR.

Can I get a DSCR loan in an LLC?

Yes, and this is a significant advantage. DSCR loans are commonly originated in the name of an LLC or other business entity, which provides liability protection. Conventional loans, by contrast, must be in the individual borrower's name (though you can transfer to an LLC after closing, with some risk of triggering the due-on-sale clause).

What happens if my DSCR drops below the minimum after closing?

Nothing happens to your existing loan. The DSCR is evaluated at the time of origination only. Your loan terms remain the same regardless of future changes in rental income or expenses.

Are DSCR loans available for short-term rentals (Airbnb/VRBO)?

Yes. Many DSCR lenders now offer programs specifically designed for short-term rentals. Instead of using long-term rental comparables, they may use the property's actual short-term rental income history or projections from platforms like AirDNA. However, expect more conservative underwriting (lower LTV, higher DSCR requirements) for short-term rental properties.

What is the minimum DSCR ratio most lenders accept?

Most lenders require a minimum DSCR of 1.00 (break-even), though some offer "no-ratio" DSCR programs that accept lower ratios with compensating factors like higher down payments and credit scores. A DSCR of 1.25 or higher is considered strong and will qualify you for the best rates and terms.

Can I use rental income from other properties to qualify for a conventional loan?

Yes, but with limitations. Conventional lenders can count rental income from other properties you own, but they typically only count 75% of the gross rental income and require a documented history of receiving that income (usually shown on tax returns). This creates a catch-22 for new investors who have not yet filed taxes showing rental income.

What is the bottom line for investors comparing DSCR and conventional?

Both DSCR loans and conventional mortgages serve important roles in a real estate investor's toolkit. Here is the simplest way to think about it:

• Choose conventional financing when you have strong documentable income, fewer than 5 financed properties, and rate is your top priority.
• Choose DSCR financing when the property's income tells a strong story, you need to scale beyond conventional limits, or your personal income documentation does not reflect your true financial strength.

The most successful investors we work with do not view this as an either/or decision. They use conventional loans strategically for their first few properties and personal residence, then layer in DSCR financing as their portfolio grows and their need for flexible, property-focused qualification increases.

Regardless of which path you choose, the most important step is getting accurate, personalized quotes for both loan types based on your specific situation and the properties you are targeting.

Ready to compare DSCR and conventional loan options for your next investment property? Schedule a consultation with our team to get side-by-side quotes and a customized financing strategy for your portfolio.

Sources: Freddie Mac PMMS, Fannie Mae 2026 Loan Limits, Defy Mortgage DSCR Guide, Bankrate Investment Property Rates, New Silver DSCR Requirements