DSCR Loans vs. Conventional Loans for Investment Properties: Which Should You Choose?

When financing an investment property, most investors default to conventional loans because that’s what they know. But conventional mortgages weren’t designed for investors building portfolios — they were designed for homeowners. DSCR loans were built specifically for real estate investors, and understanding the DSCR vs conventional loan differences matters more than you might think.

Here’s a clear, side-by-side breakdown to help you decide which loan type fits your investment strategy.

Quick Comparison Table

Feature	DSCR Loan	Conventional Loan
Income Verification	None — based on property’s rental income	Full — tax returns, W-2s, pay stubs
DTI Requirement	None	Yes — typically max 45–50%
Down Payment	20–25%	15–25%
Credit Score Minimum	660+	620+ (680+ for best pricing)
Max Properties Financed	No limit	10 (Fannie Mae limit)
LLC/Entity Vesting	Yes — close directly in LLC	No — must close in personal name
Interest Rates	Higher (typically 1–2% above conventional)	Lower baseline rates
Closing Timeline	21–30 days	30–45 days
Self-Employed Friendly	Excellent — no income docs needed	Challenging — complex income calculation
Prepayment Penalty	Common (3–5 year options)	None

When a DSCR Loan Is the Better Choice

You’re Self-Employed or a Business Owner

This is one of the biggest DSCR vs conventional loan differences when it comes to qualification. self-employed borrowers often show low adjusted gross income on tax returns due to legitimate business deductions. Conventional lenders use that AGI to qualify you, which can dramatically reduce your buying power. DSCR loans skip your tax returns entirely.

You Already Own Multiple Financed Properties

Fannie Mae caps conventional investment property loans at 10 per borrower. If you’re approaching that ceiling — or you’re already past it — DSCR loans have no portfolio limit. Buy your 11th, 20th, or 50th property with the same program.

You Want Asset Protection Through an LLC

Conventional loans require personal-name vesting, which exposes you to personal liability. Many investors close conventionally and then transfer to an LLC, but this can technically trigger a due-on-sale clause. DSCR loans let you close directly in your LLC or land trust from the start.

You Need to Close Quickly

Without the back-and-forth of income verification, DSCR loans often close in 21–30 days versus 30–45 for conventional. In competitive markets, speed matters.

You’re Buying a Short-Term Rental

Conventional lenders generally don’t accept Airbnb/VRBO income for qualification. DSCR lenders do — they’ll use AirDNA projections or your actual booking history.

When a Conventional Loan Makes More Sense

You’re Buying Your First 1–4 Investment Properties

In the DSCR vs conventional loan debate, conventional wins if you have strong W-2 income, low DTI, and are early in your portfolio, conventional rates are lower and you won’t pay a prepayment penalty. The savings can be meaningful on your first few deals.

You Have Strong Documentable Income

If your tax returns show high income and you easily qualify at conventional DTI thresholds, you’ll get better rates with a conventional loan.

You Plan to Sell or Refinance Soon

DSCR loans often include a prepayment penalty (typically 1–5 years). If you plan to flip the property or refinance within that window, a conventional loan with no prepayment penalty may save you money.

The Hybrid Strategy: Use Both

Many experienced investors use both loan types strategically:

Use conventional loans for your first 5–10 properties — Take advantage of lower rates while your DTI allows it.
Switch to DSCR when conventional runs out — Once you hit the Fannie Mae cap, or your DTI gets too high, pivot to DSCR for continued portfolio growth.
Use DSCR for STR and LLC properties — Even while using conventional for long-term rentals, use DSCR for short-term rentals and any properties you want in an entity.

This approach maximizes your rate advantage early while preserving unlimited scaling ability later.

Frequently Asked Questions

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

Yes. This is common when investors want to move a property into an LLC. You can do a rate-and-term or cash-out refinance from conventional to DSCR.

Do DSCR loans show up on my personal credit report?

It depends on the lender and how the loan is structured. Most DSCR loans in an LLC name do not report to personal credit bureaus, though the initial credit pull will show as an inquiry.

Is the interest on a DSCR loan tax-deductible?

Yes. Mortgage interest on investment properties is deductible as a business expense regardless of the loan type. Consult your CPA for specifics.

Can I get a DSCR loan with no money down?

No. DSCR loans require a minimum 20% down payment for purchases. However, if you’re doing a cash-out refinance on an existing property, you can potentially pull out equity to fund the down payment on your next acquisition. This is a common DSCR vs conventional loan misconception worth clarifying.

Which Loan Is Right for You?

The best loan depends on where you are in your investing journey, your income documentation situation, and your long-term strategy. At Integrity Home Lending, we have access to both conventional and DSCR loan programs through our wholesale lending partners, so we can recommend the right fit for your specific situation.

Get Pre-Qualified for Both Options →

Or call us at 877-445-3631 | Sales@IH-Lending.com

Integrity Home Lending | NMLS #2412324 | Licensed in GA, FL, NC, SC, TN, VA, AL, CO, MD, NE, NJ, MS, PA, AK