When it comes to funding your next real estate deal, choosing the right loan product can make or break your investment. Whether you’re eyeing your first rental property or scaling a growing portfolio, understanding your financing options is key. Two common paths you’ll encounter? DSCR loans and conventional mortgages.
Each has its strengths—and serious limitations—depending on your financial profile and investment strategy.
In this guide, we’ll break down DSCR loans vs conventional mortgages, covering how they work, their pros and cons, and which one is best suited to your goals as a real estate investor.
Overview – Choosing the Right Loan for Real Estate Investments
Financing a real estate deal is about more than just locking in the lowest rate. It’s about finding a loan structure that aligns with your long-term strategy, whether you’re buying and holding for cash flow or flipping for short-term gains.
Some investors benefit from the traditional route of conventional mortgages, especially if they have strong personal income and credit. Others prefer the streamlined process of DSCR (Debt Service Coverage Ratio) loans, which look at the income potential of the property instead of the borrower’s income.
So how do you choose? Let’s start by understanding how each loan works.
What Is a DSCR Loan and How it Works?
A DSCR loan is a type of real estate investment loan that focuses on the cash flow of the property you’re buying—rather than your personal income or employment history. DSCR stands for Debt Service Coverage Ratio, a financial metric lenders use to assess whether the property’s rental income can cover the loan payments.
Instead of W-2s, tax returns, and paycheck stubs, lenders look at:
- Monthly rent or projected rent
- Loan amount
- Interest rate and amortization
- DSCR ratio (typically needs to be 1.0–1.25 or higher)
If the numbers make sense—and the property earns more than it costs—you’re in business.
Key Requirements for DSCR Loans
While each lender sets their own guidelines, typical DSCR loan requirements include:
- Minimum DSCR: 1.0–1.25
- Minimum credit score: 620–660
- Down payment: 20–25%
- Property type: Investment properties only (single-family, multifamily, short-term rentals, etc.)
- Documentation: Lease agreements or market rent analysis instead of tax returns
At eFunder Capital, we help real estate investors get approved based on the strength of their deal—not the size of their W-2.
Pros and Cons of DSCR Loans
| Advantages | Disadvantages |
| ✔️ Easier to Qualify DSCR loans are ideal for real estate investors who don’t have traditional income or prefer not to document it. No tax returns, no pay stubs—just the property’s cash flow. | ❌ Higher Interest Rates Because they’re considered riskier, DSCR loans often come with slightly higher rates than conventional loans. |
| ✔️ Streamlined Approval Process Because the underwriting is asset-based, many DSCR loans can close faster than traditional loans. | ❌ Larger Down Payments Expect to put down at least 20–25%—sometimes more for unique properties like short-term rentals. |
| ✔️ Works for Portfolio Growth DSCR loans are great for scaling. Some lenders even offer blanket loans to cover multiple properties. | ❌ Performance-Based Risk If your rental income dips or vacancies rise, you could struggle to meet your DSCR and risk default. |
What Is a Conventional Mortgage and How it Works?
A conventional mortgage is a traditional home loan offered by banks, credit unions, and private lenders. It’s underwritten based on your personal financials: income, credit score, debt-to-income ratio (DTI), and employment status.
These loans are often used for primary residences but can also be applied to investment properties—though with stricter rules.
Qualification Criteria and Process
To qualify for a conventional loan, lenders typically require:
- Credit score: 680–740+ for best rates
- DTI ratio: Below 45%
- Stable W-2 income or tax returns
- Down payment: 5–20%, depending on property type
- Reserves: Cash on hand to cover mortgage payments
It’s a great option for homebuyers or investors with a strong financial profile—but it can be a headache for full-time investors or self-employed borrowers.
Pros and Cons of Conventional Mortgages
| Advantages | |
| ✔️ Lower Interest Rates Conventional loans typically offer better rates for qualified borrowers, which can reduce your long-term borrowing costs. | ❌ Stringent Qualification You’ll need documented income, a good credit score, and low DTI to qualify—harder for investors with multiple properties or inconsistent income. |
| ✔️ PMI Removal If you put down less than 20%, you may pay PMI—but it can be removed later once you build equity. | ❌ Property Restrictions Lenders may limit the number of financed properties or restrict loan options for multifamily or short-term rentals. |
| ✔️ Easier to Refinance Conventional loans are well-understood by lenders, making them easier to refinance into or out of. | ❌ PMI Costs If your down payment is under 20%, you’ll be paying mortgage insurance until you reach a certain equity threshold. |
DSCR Loan vs Conventional Mortgage: A Side-by-Side Comparison
Here’s a quick look at how DSCR loans stack up against conventional mortgages:
| Feature | DSCR Loan | Conventional Mortgage |
| Income Verification | Based on rental income | Based on personal income |
| Credit Score | 620–660+ | 680–740+ preferred |
| Down Payment | 20–25% | 5–20% |
| Interest Rates | Slightly higher | Lower for top borrowers |
| Property Type | Investment only | Primary, second home, or investment |
| Speed | Fast closing | Slower process |
| Ideal Borrower | Real estate investor | W-2 or salaried borrower |
Best Use Cases for Each Loan Type
Use a DSCR Loan When:
- You’re buying a cash-flowing rental property
- You’re self-employed or own multiple businesses
- You want to avoid full income documentation
- You’re scaling a rental portfolio
Use a Conventional Mortgage When:
- You’re buying a primary residence or second home
- You have strong W-2 income and high credit
- You want the lowest possible interest rate
- You’re not in a rush to close
Which Loan Is Right for You as an Investor?
Choosing between a DSCR loan and a conventional mortgage depends on your situation, strategy, and long-term goals.
Let’s say you’re a full-time investor like Derrick, who flips and rents properties in Pittsburgh. He doesn’t take a salary but owns multiple cash-flowing rentals. A conventional loan would block him out. But a DSCR loan? It gets approved based on the income his properties generate.
Now imagine Sarah, a W-2 professional buying her first duplex. She has a strong salary, excellent credit, and plans to house hack. A conventional loan gives her access to low rates and PMI removal once she hits 20% equity.
Both are winning. They’re just using different tools.
At eFunder Capital, we guide investors to the financing strategy that aligns with their goals—not just their credit score.
FAQs About DSCR and Conventional Loans
1. Can you use a DSCR loan for short-term rentals like Airbnb?
Yes. Many DSCR lenders allow for short-term rentals if you can show cash flow via AirDNA, historical bookings, or pro forma rent estimates.
2. Is a DSCR loan considered a conventional loan?
No. DSCR loans fall under non-QM (non-qualified mortgage) products. They’re not backed by Fannie Mae or Freddie Mac.
3. Can you refinance a DSCR loan into a conventional mortgage?
Yes, if you qualify. This is a common strategy for reducing rates after stabilizing a property.
4. Which is easier to get approved for?
If you have a strong W-2 and credit—conventional is easier. If your strength is your property’s cash flow—DSCR is your best bet.
Final Thoughts: Match the Loan to Your Strategy
There’s no one-size-fits-all answer in real estate investing. DSCR loans vs conventional mortgages is really a question of where you are in your journey.
- Want low rates and have strong income? Go conventional.
- Want to scale fast and let your properties qualify themselves? DSCR is your path.
At eFunder Capital, we help real estate investors nationwide—from Pittsburgh to Phoenix—find the right funding for every deal. Whether you’re flipping houses, building a portfolio, or buying your first Airbnb, we’ll help you finance smarter.
Ready to fund your next investment? Let’s talk DSCR loans, conventional options, and everything in between.
