DSCR Loans vs Conventional Rental Loans

A DSCR loan qualifies the property, not the borrower. The lender calculates the Debt Service Coverage Ratio by dividing the property's gross rental income by the total monthly mortgage payment (principal, interest, taxes, insurance, and HOA dues). A DSCR of 1.0 means the rent exactly covers the mortgage. A DSCR of 1.25 means the rent exceeds the mortgage by 25%. Most lenders require a minimum DSCR between 1.0 and 1.25, though some offer programs for ratios as low as 0.75 with compensating factors like higher down payments or stronger credit scores. The practical implication is powerful: if you own a rental property that generates enough income to cover its own debt, you can get a loan regardless of your personal tax returns. A self-employed investor who shows $40,000 on their tax return but owns 15 cash-flowing rentals can qualify for a DSCR loan on property number 16 without any income verification. This is the single biggest advantage of DSCR lending and the reason it has become the go-to product for portfolio-scale investors.

If you are buying your first or second investment property, have a strong W-2 income, excellent credit, and are not in a rush to close, a conventional mortgage will save you money. The interest rate spread between conventional and DSCR loans is typically 1% to 2.5%, which translates to meaningful savings over a 30-year term. On a $250,000 loan, a 1.5% rate difference means approximately $250 more per month or $90,000 more in total interest over the life of the loan. For investors who qualify easily under conventional guidelines and do not plan to scale beyond a few properties, the lower rate of a conventional mortgage is difficult to beat. Conventional loans also tend to have more flexible prepayment terms and lower origination costs, making them the economically rational choice for borrowers who fit the conventional box.

Conventional lending was not designed for professional real estate investors, and its limitations become obvious as portfolios grow. The Fannie Mae 10-property limit is the most cited constraint, but the real ceiling hits earlier. After 4 financed properties, most conventional lenders require 25% down instead of 20%, reserves of 6 months of payments per property, and increasingly granular documentation. An investor with 8 properties and a full-time W-2 job might have a perfectly healthy financial profile, but the documentation burden becomes overwhelming: eight lease agreements, eight insurance policies, eight mortgage statements, and a debt-to-income calculation that becomes nearly impossible to manage. DSCR loans eliminate this bottleneck entirely. Each property is underwritten independently based on its own income. Property number 30 is no harder to finance than property number 3, provided it cash-flows. This is why investors who plan to build portfolios of 10 or more rental units eventually migrate to DSCR lending, even if they start with conventional loans.

Sophisticated investors often use a blended financing approach. They secure conventional mortgages on their first several investment properties to lock in the lowest available rates, then switch to DSCR loans once they exhaust their conventional capacity or prefer the streamlined documentation process. Some investors also use DSCR loans specifically for properties held in LLCs, maintaining their conventional loan capacity for properties held in their personal name. This dual-track approach maximizes leverage while minimizing blended borrowing costs. AssetLift Lending offers DSCR loans with no limit on the number of properties financed, allowing investors to scale their portfolios without the artificial ceilings imposed by conventional lending. Whether you are refinancing your fifth rental or your fiftieth, the process is the same: prove the property cash-flows, and the loan gets done.