DSCR loan or conventional loan? It depends on what your tax returns show.
Both finance a rental for 30 years. A conventional loan is decided on your income, your tax returns and your debts. A DSCR loan is decided on the property’s rent and leaves your income out. Conventional is usually cheaper when you qualify. DSCR is usually the one that works when you do not, or when you hold property in an LLC.
DSCR and conventional, side by side.
| Term | DSCR loanThe property’s rent | Conventional loanYour income |
|---|---|---|
| Qualifies onWhat the lender reads to decide. | The rent against the full monthly payment | Your income, tax returns and debt-to-income ratio |
| DocumentsWhat you send. | A lease or market rent, entity papers, bank statements for reserves | Tax returns, W-2s or business returns, pay stubs, every debt you carry |
| LeverageHow much of the price or value. | Up to 85% on a purchase, 80% on a cash-out | Set by the agencies’ guidelines and your file |
| Close in an LLCThe name on the deed. | Yes | Generally in your own name |
| How many propertiesFinanced at one time. | No agency cap | Up to 10 financed properties (the agencies’ rule) |
| Prepayment penaltyThe cost of paying off early. | Usually. Ours: 5-1-1-1-1, a flat 1%, or none | None |
| RateFor the same borrower and property. | Higher | Usually lower |
| PropertyWhat it can be. | 1–4 unit rentals, non-owner-occupied | 1–4 unit rentals |
Both loans are for rentals here: we lend on non-owner-occupied investment property only.
Which one fits you.
| Term | Usually the better loanthe answer | Whythe reason |
|---|---|---|
| Your tax returns show your full incomeA salary, or a business that reports its profit. | Conventional | You qualify the standard way and usually get the lower rate |
| Write-offs shrink your taxable incomeCommon for investors and the self-employed. | DSCR | Your tax returns are not read; the rent qualifies the loan |
| You hold rentals in an LLCFor liability or partners. | DSCR | It is made to the LLC; agency loans are generally made to individuals |
| You already have many mortgagesEach one counts against you on a conventional file. | DSCR | There is no agency cap, and your other debts are not in the ratio |
| You may sell or refinance soonInside the first five years. | Conventional, or DSCR with the right prepay | A standard DSCR penalty is costly early. Ours can be a flat 1% or none |
| The rent does not cover the paymentA thin deal or a vacancy. | Conventional, or our no-ratio option | Conventional reads your income instead; our no-ratio option has no cash-flow test |
Not sure which side of the line you are on? Send us the deal and how your income documents. We price both.
DSCR vs conventional questions
Is a DSCR loan a conventional loan?
No. A conventional loan follows Fannie Mae or Freddie Mac guidelines and is decided on your income. A DSCR loan is a business-purpose loan decided on the property’s rent.
Is a DSCR loan better than a conventional loan?
Not always. If your income documents cleanly and you have room for more debt, conventional usually costs less. DSCR is better when your tax returns do not show your income, you buy in an LLC, or you are past the agencies’ property limit.
Which has the lower rate?
Conventional, usually, for a borrower who qualifies for both. A DSCR loan prices for not reading your income.
Do DSCR loans need a bigger down payment?
Ours go up to 85% of the purchase price for well-qualified borrowers. Your leverage depends on credit, the DSCR and the property.
Do conventional loans have a prepayment penalty?
No. Most DSCR loans do. We offer 5-1-1-1-1, a flat 1% for five years, or no penalty. Compare the options.
How many conventional loans can I have?
The agencies allow up to ten financed properties for one borrower. DSCR loans have no agency cap.
Can I refinance a conventional loan into a DSCR loan?
Yes, and the other way round. A DSCR cash-out refinance is a common way to take equity out without a tax-return review.
Do you offer both?
Yes. DSCR loans and conventional investment loans, so we have no reason to push you into the wrong one.
DSCR or conventional? Send us the deal.
The property, the rent and how your income documents. We tell you which one prices best.
*For business-purpose loans on non-owner-occupied investment property only. Not available for personal, family or household purposes. All loans subject to credit approval, underwriting and property eligibility. Rates, leverage and terms are indicative, change without notice, and not all borrowers will qualify; not a commitment to lend. YS Capital Group · NMLS ID 2609746 · Equal Housing Lender.