Two investors buy the same $250,000 rental in the same month. One closes in 21 days through a DSCR lender at 7.6%. The other spends seven weeks documenting income to a conventional underwriter and gets 6.9%. Both made a defensible choice. Which one is right for you depends almost entirely on how many doors you already own and how aggressively your tax return understates your income.
The fundamental difference
A conventional loan underwrites you. Your W-2s, your tax returns, your debt-to-income ratio, your personal reserves.
A DSCR loan underwrites the property. The lender asks one question: does this property's rent cover its own debt service? Your personal income is largely irrelevant.
PITIA is principal, interest, taxes, insurance and HOA. A property renting for $2,100 with a $1,680 PITIA has a DSCR of 1.25 — comfortably financeable.
Head to head in 2026
| Factor | Conventional | DSCR |
|---|---|---|
| Rate range | 6.6–7.3% | 7.3–8.6% |
| Down payment | 20–25% | 20–25% |
| Income docs | 2 yrs returns, W-2s, paystubs | None |
| DTI reviewed | Yes, capped ~45% | No |
| Property limit | 10 financed properties | Effectively unlimited |
| Close in LLC | No | Yes, standard |
| Time to close | 35–50 days | 18–30 days |
| Prepay penalty | None | Usually 3–5 yr step-down |
| Points / fees | ~1% | 1.5–2.5% |
What DSCR ratio you actually need
- 1.25+ — best pricing tier, widest lender selection
- 1.10–1.24 — approvable, expect a rate bump of 25–50 bps
- 1.00–1.09 — break-even; fewer lenders, higher down payment often required
- Below 1.00 — “no-ratio” programs exist but price 100–175 bps higher and want 30% down
When conventional is clearly better
- You have strong documented W-2 income and few doors. Under 4 properties with a clean DTI, the rate savings are real money.
- You plan to sell or refinance within 3 years. DSCR prepayment penalties can cost 3–5% of the balance.
- The property barely cash flows. A DSCR near 1.0 prices badly; a conventional lender won't care.
- It's a house hack or second home. DSCR loans are business-purpose only and cannot be used on anything owner-occupied.
When DSCR is clearly better
- You already have 4–10 financed properties. Conventional DTI math collapses long before the 10-property cap becomes the binding constraint.
- You're self-employed with aggressive deductions. Depreciation and write-offs that save you taxes actively destroy conventional qualification.
- You want title in an LLC. Conventional loans require personal vesting; transferring afterward risks a due-on-sale clause.
- You need to close fast. On a competitive off-market deal, three fewer weeks wins the contract.
- You're exiting a BRRRR. Most DSCR lenders will refinance at a 6-month seasoning; some go to 3 months on appraised value.
The cost of the rate difference, honestly
On a $200,000 loan, 7.6% versus 6.9% is roughly $94 a month, or about $1,130 a year. That's the real number people either dismiss or catastrophize.
It is genuinely meaningful on a property netting $300 a month. It is close to irrelevant if the alternative is not buying at all because your DTI is maxed, or losing the deal to a faster buyer. Price the gap, then decide whether it buys you something worth $94.
Questions to ask before you sign a DSCR term sheet
- What is the prepayment structure, and is a buydown available?
- Is the DSCR calculated on gross rent or net of vacancy and management?
- Are taxes and insurance escrowed, and is the escrow included in the ratio?
- What are the reserve requirements — how many months of PITIA?
- Is there a seasoning requirement for a cash-out refinance?
- Does the lender allow short-term rental income, and on what documentation?
For the deeper mechanics, read DSCR loans explained. If you're weighing a refinance on a property you already own, see when to refinance a rental property.
Know your DSCR before the lender does
Havyn tracks debt service coverage across every property and your whole portfolio in real time, so you know which doors qualify for a refinance before you apply.
See how it worksFrequently asked questions
- Is a DSCR loan better than a conventional loan?
- Neither is universally better. Conventional loans price 50–130 basis points cheaper and carry no prepayment penalty, so they win when you have strong documented W-2 income and fewer than four financed properties. DSCR loans win when your tax returns understate your income, you're past the conventional DTI ceiling, you need to close in an LLC, or you need to close fast.
- What DSCR ratio do lenders require in 2026?
- 1.25 or higher gets best pricing and the widest lender selection. 1.10 to 1.24 is approvable with a rate bump of roughly 25 to 50 basis points. Between 1.00 and 1.09 you'll face fewer lenders and often a larger down payment. Below 1.00, no-ratio programs exist but price 100 to 175 basis points higher and typically want 30% down.
- How many rental properties can you finance conventionally?
- Fannie Mae allows up to 10 financed properties, but most investors hit the debt-to-income ceiling around four to six properties, long before the count limit becomes the binding constraint. That's the point where most investors move to DSCR financing.
- Do DSCR loans have prepayment penalties?
- Most do, typically with a 3 to 5 year step-down structure costing 3% to 5% of the balance in year one and declining annually. Many lenders will sell you a buydown to shorten or remove it. If you plan to sell or refinance within three years, price that buydown before you sign.
- Can you close a DSCR loan in an LLC?
- Yes, and it's standard practice. DSCR loans are business-purpose loans and lenders expect LLC vesting. Conventional loans require personal vesting, and transferring to an LLC afterward can trigger the due-on-sale clause.
