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Which loan type is right for your investment property? Compare the key differences to make the best financing decision.
Key Takeaways
Choosing between DSCR and conventional loans depends on your income documentation, portfolio size, and investment timeline. DSCR loans qualify based on property cash flow, while conventional loans evaluate your personal income and debt-to-income ratio.
1.0-1.25
minimum DSCR ratio required by most lenders
Source: Fannie Mae
No W-2s
required - DSCR loans qualify based on property cash flow, not personal income
Source: Clear House Lending Market Data
620-680
minimum credit score typically required for DSCR loans
Source: Clear House Lending Market Data
75-80%
maximum LTV for DSCR investment property loans
Source: Freddie Mac Investor Resources
| Feature | DSCR Loan | Conventional Loan |
|---|---|---|
| Approval Basis | Property cash flow (DSCR) | Personal income & DTI |
| Income Verification | Not required | Full documentation |
| Tax Returns Required | No | Yes (2 years) |
| DTI Calculation | Not calculated | Required (max 43-50%) |
| Property Limit | Unlimited | 10 properties max |
| Interest Rates | Higher (typically +1-2%) | Lower (best available) |
| Minimum Down Payment | 20-25% | 15-25% |
| Credit Score Minimum | 620-680 | 620-680 |
| LLC Ownership | Widely allowed | Rarely allowed |
| Closing Time | 2-4 weeks | 30-45+ days |
| Loan Terms | 15-30 year fixed, ARMs, I/O | 15-30 year fixed |
| Property Types | Investment only | Primary, second home, investment |
Conventional loans qualify you based on your personal income, debts, and employment history. Lenders calculate your debt-to-income (DTI) ratio and require extensive documentation including tax returns, W-2s, and pay stubs.
DSCR loans qualify you based on the property's rental income compared to its mortgage payment (the Debt Service Coverage Ratio). Your personal income isn't verified, and no DTI is calculated. This makes DSCR loans ideal for self-employed investors, those with complex income, or anyone who takes significant tax deductions.
Conventional financing typically limits investors to 10 financed properties through Fannie Mae/Freddie Mac guidelines. After that, financing becomes significantly more difficult.
DSCR loans have no property limit. Because each loan is evaluated independently based on that property's cash flow, you can finance as many properties as you find. This makes DSCR the preferred vehicle for serious portfolio scaling.
Conventional loans almost always require the property to be held in your personal name, exposing your personal assets to liability from the property.
DSCR loans allow—and often encourage—holding title in an LLC. This provides asset protection by separating the investment property from your personal assets.
Conventional loans typically offer the lowest rates because they're backed by government-sponsored enterprises (Fannie Mae, Freddie Mac) with strict underwriting standards.
DSCR loans are Non-QM products with higher risk tolerance, resulting in rates typically 1-2% higher than conventional. However, the flexibility and scalability often outweigh the rate difference for active investors.
Hypothetical $400,000 loan at 75% LTV for a rental property:
7.00%
Monthly P&I: $2,661
8.25%
Monthly P&I: $3,003
Difference: ~$342/month. For many investors, the flexibility and scalability of DSCR loans justifies this premium.
Situation: You earn $200K but your tax return shows $80K after business deductions. Your DTI would be too high for conventional.
Best Choice: DSCR loan—qualifies on property income, not your tax return.
Situation: You have stable W-2 income, strong credit, no other investment properties, and can wait 30+ days to close.
Best Choice: Conventional loan—you'll get the lowest rate and have plenty of capacity.
Situation: You own 10 properties with conventional loans and want to buy #11.
Best Choice: DSCR loan—the only practical option to continue scaling beyond conventional limits.
Situation: You found a great deal but the seller wants to close in 3 weeks. Documentation would take too long.
Best Choice: DSCR loan—can close in 2-4 weeks with streamlined documentation.
Clear House Lending offers both DSCR and conventional investment property financing. We'll evaluate your situation and recommend the best loan type for your specific needs and investment goals.
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