For a real estate investor, the choice between a DSCR loan and a traditional mortgage is a pivotal decision that directly impacts growth and returns.
While conventional loans have long been the industry standard, DSCR loans are quickly gaining traction among investors seeking more flexible qualification methods.
Today, mortgage lenders offer more specialized loans for investment properties, giving buyers options that are better aligned with their unique strategies. A key metric in this process is the debt service coverage ratio. Most lenders prefer a 1.2 ratio, but some will accept 1.1 on strong deals.
This article compares DSCR vs. conventional mortgage financing, outlining loan requirements, pros and cons, and strategies. By understanding the differences in mortgages for investment properties, you can select financing that supports your long-term portfolio goals.
Understanding DSCR Loans for Investment Properties
What Makes DSCR Loans Different
A DSCR loan qualifies borrowers based on a property’s rental income rather than personal finances. Conventional loans depend on tax returns, pay stubs, and debt-to-income ratios. DSCR loans look only at whether rental income covers the mortgage. The debt service coverage ratio is calculated by dividing rental income by monthly debt, including principal, interest, taxes, insurance, and association fees.
A ratio of 1.2 means the property produces 20 percent more income than the payment required. This approach works well for self-employed borrowers or real estate investors with complex income. Instead of analyzing years of records, lenders check whether the property itself can support the mortgage.
Key DSCR Loan Features
DSCR loans remove income verification, allow purchases under LLCs or corporations, and close quickly, often in two to three weeks. They also have no cap on the number of properties financed. At Groundfloor Lending, DSCR loan requirements are flexible, with ratios as low as 1.1 accepted for strong deals. This gives real estate investors opportunities that many mortgage lenders would reject.
DSCR Loan Requirements
Groundfloor Lending's DSCR loan requirements include a minimum credit score of 660, a 20 percent down payment, and property values of at least $150,000. Most programs require a ratio of 1.2, but we accept a ratio of 1.1 in many instances. These loans are available only for investment properties, including single-family homes and small multi-units.
Terms include 30-year fixed rates with up to 80 percent LTV, and many loans close in around two weeks. Financing through an LLC is also supported, giving investors liability protection with predictable monthly payments.
Traditional Mortgages for Investment Properties
How Conventional Investment Mortgages Work
Conventional loans for investment properties follow standards set by Fannie Mae and Freddie Mac, which establish the rules lenders must meet for their loans to be eligible for purchase.
These programs require tax returns, pay stubs, bank statements, and a review of debt-to-income ratios. Lenders also apply a 75 percent rental income offset, meaning only part of projected rent counts toward qualifying income. This conservative approach accounts for vacancies and expenses but reduces income available on paper.
These loans are a common form of investment property mortgages and remain a staple for long-term investment property financing. While also used for home loans on primary residences, the requirements are stricter for mortgages for investment properties. Because of the heavy documentation, many investors find the process slower than DSCR loans.
Conventional Mortgage Requirements
Conventional investment property loans are more demanding than DSCR loans and can be a major hurdle for investors building larger portfolios. Fannie Mae, for example, limits borrowers to a maximum of 10 financed properties. For those with 7 to 10, a minimum credit score of 720 is required, along with additional cash reserves equal to 2 to 6 percent of the total loan balances on those properties
Interest Rates and Terms
Conventional mortgages for investment properties usually carry rates 0.5 to 0.75 percent higher than owner-occupied homes. They often follow 30-year amortization schedules with fixed-rate terms and predictable monthly payments. Borrowers can refinance into better terms as equity grows. While the rate premium reflects risk, conventional loans remain competitive for investors with strong credit and stable income.
DSCR vs. Conventional Mortgage: Direct Comparison
Qualification Differences
DSCR loans do not use personal income documentation, while conventional loans require tax returns and employment verification. DSCR loans often accept credit scores starting at 660, while conventional lenders prefer 720 or higher. Conventional loans cap borrowers at 10 financed properties, but DSCR loans have no such limit, letting each property qualify on its own.
Cost Analysis
DSCR loans generally carry higher rates, usually one to two percent above conventional loans. For example, if conventional mortgage rates are 7.5 percent, DSCR loans may range from 8.5 to 9.5 percent. Both loan types require down payments of 20 to 25 percent, though some DSCR programs accept 15 percent in select markets. DSCR loans may include higher origination fees or rent analysis costs, but they close in two to three weeks compared to 30 to 45 days for conventional loans.
Pros and Cons Analysis
DSCR Loan Advantages
DSCR loans remove personal income verification, allow unlimited portfolio growth, and permit entity ownership through LLCs. They also close faster, giving real estate investors an edge in competitive markets.
DSCR Loan Disadvantages
Higher rates can increase annual costs. Loan approval depends fully on property performance, so vacancies or rent declines create risks. Property types are limited, with most lenders financing only single-family or small multi-unit rentals in stable markets.
Conventional Mortgage Advantages
Conventional loans offer lower interest rates, predictable monthly payments, and established industry processes. They also support a wider range of property types, including homes needing major renovations.
Conventional Mortgage Disadvantages
The process requires heavy documentation, including tax returns and income statements. Borrowers are capped at 10 financed properties, which limits scaling. Closings are slower, often causing missed opportunities in fast-moving markets.
When to Choose Each Loan Type
DSCR loans are ideal for self-employed investors, those using tax strategies that reduce income on paper, or anyone seeking to scale quickly. They also work well when purchasing through an LLC or competing in tight markets. Conventional loans suit borrowers with stable income who want lower long-term rates and predictable financing. They are often the best fit for the first few investment properties.
Strategic Considerations for Portfolio Growth
Many investors combine DSCR and conventional loans over time. Conventional loans work well for early purchases when income documentation is straightforward, while DSCR loans provide speed and flexibility as portfolios grow.
Market conditions also matter. In rising rate environments, the DSCR rate premium becomes less significant, while in falling rate environments conventional loans offer more savings. Location matters too. DSCR loans work best in markets with strong rent-to-price ratios, while conventional loans may be more reliable in areas with unstable rental demand.
Frequently Asked Questions
What is the minimum DSCR ratio most lenders accept?
Most lenders require 1.2, but Groundfloor Lending accepts 1.1. This flexibility has helped us fund over 6,000 real estate investment loans.
Do DSCR loans always have higher interest rates than conventional mortgages?
Yes. DSCR loans are usually 1–2% higher, but Groundfloor Lending’s $1.4 billion in originated loans shows investors value the speed and flexibility.
How many properties can I finance with a DSCR loan?
There is no cap. Unlike conventional mortgage requirements that limit you to 10, Groundfloor Lending's DSCR loans allow unlimited properties as long as each qualifies.
When should I use a conventional mortgage instead of a DSCR loan?
Conventional loans are best if you have stable documented income, want lower monthly payments, or are buying your first few investment properties.
Do DSCR loans work for all property types?
Most DSCR loans apply to single-family homes and small multi-units in rental markets. Groundfloor Lending offers 30-year fixed-rate DSCR loans with up to 80% LTV.
Choosing the Right Loan for Your Investment Strategy
The choice between DSCR vs. conventional mortgage financing depends on your goals as a real estate investor. Conventional loans provide lower interest rates and predictable processes for borrowers with stable income. DSCR loans deliver speed, flexibility, and unlimited growth for those who want financing based on property performance.
At Groundfloor Lending, our DSCR program accepts ratios as low as 1.1 and closes faster than most mortgage lenders. With more than 6,000 loans issued and over $1.8 billion in investment property financing originated across all loan products, we have the scale and experience to help real estate investors secure the right funding for long-term success.
Have questions about your next move?
September 16, 2025