Two Ways to Qualify for the Same Property
For an investment property, you can qualify on the property's income or on your own financial picture. DSCR loans do the former. Conventional loans do the latter. Same building, two very different applications.
Which path is cheaper depends on your tax returns, your leverage, and how much documentation you want to hand over.
How DSCR Loans Work
A DSCR loan qualifies on the debt service coverage ratio, the property's net operating income divided by its debt payment. Most lenders want a minimum of 1.20 to 1.25x, meaning the rent covers the payment with a 20 to 25% cushion. You generally do not submit personal tax returns.
Leverage generally runs up to 75 to 80% LTV. Rates sit modestly above a conventional loan because the lender leans on the asset rather than your income. For investors with complex returns or several entities, that trade is often worth it.
How Conventional Investment Loans Work
A conventional loan underwrites you and the property together. Expect full documentation: two to three years of tax returns, a personal financial statement, and a global cash flow analysis that folds in your other obligations. Down payments usually run 20 to 25%.
In exchange, the rate is typically lower than a DSCR loan and the terms can be longer. Banks reward borrowers with clean books and strong global cash flow with their best pricing.
Rate, Leverage, and Documentation Comparison
Side by side:
- Qualification: DSCR on property income, conventional on borrower plus property
- Minimum coverage: DSCR generally 1.20 to 1.25x, conventional uses global DSCR across your debts
- Documentation: DSCR light, conventional full tax returns and financials
- Rate: DSCR modestly higher, conventional typically lower
- Leverage: DSCR generally up to 75 to 80% LTV, conventional generally 75 to 80% with 20 to 25% down
- Speed: DSCR faster to close, conventional slower due to full underwriting
When to Choose a DSCR Loan
Choose a DSCR loan when your tax returns understate your real income, when you hold property in multiple LLCs, or when you want to scale a portfolio without a bank counting every mortgage against you. Self employed investors lean on DSCR loans for exactly this reason.
It is also the faster close. If the property clears the typical coverage minimum comfortably and you value speed and simplicity, the slightly higher rate buys you a much easier approval.
When to Choose a Conventional Loan
Choose conventional when your documentation is clean and your global cash flow is strong. If you can show the income and carry the other debts, a bank will usually beat a DSCR lender on rate, and over a long hold that lower rate adds up.
It also fits borrowers who want the longest terms and the deepest relationship pricing. If you are not in a hurry and your books support it, conventional is the lower cost path.
How CapitalAx Matches the Right Loan
CapitalAx quotes DSCR and conventional options together so you can see the real cost of each. Our national platform of more than 350 lenders includes DSCR specialists and relationship banks, and we place investment property debt typically from $20K to $500M. We tell you which program you actually qualify for before you waste weeks on the wrong one.