If you’re a real estate investor looking to scale your rental portfolio, you’ve likely come across two options for long-term financing: the conventional 30-year real estate loan and the 30-year DSCR (Debt Service Coverage Ratio) hard money loan. While both offer long amortization terms, they cater to very different investor needs.
So, how do you decide which is right for you? Let’s break down the key differences, benefits, and drawbacks—complete with examples—to help you make the smartest move for your investing strategy.
What Is a Conventional 30-Year Real Estate Loan?
This is the same type of mortgage most homeowners get—offered by banks and credit unions, backed by Fannie Mae or Freddie Mac, with strict underwriting standards.
Pros:
• Low Interest Rates: Typically lower than hard money rates (5-7% depending on credit and market).
• Predictable Payments: Fixed-rate options mean consistent monthly costs.
• Long-Term Stability: Ideal for long-term buy-and-hold investors.
Cons:
• Strict Qualification: Requires strong credit (typically 680+), full income documentation, and low DTI (Debt-to-Income) ratios.
• Property Limits: Most lenders cap investors at 10 financed properties.
• Time-Consuming: Underwriting and closing can take 30-60+ days.
What Is a 30-Year DSCR Hard Money Loan?
30-Year DSCR loans are built specifically for real estate investors. Instead of verifying your personal income, lenders evaluate the property’s cash flow to ensure it covers the debt service (your loan payments).
Pros:
• No Income Verification: Perfect for self-employed investors or those with complex tax returns.
• Quick Closings: Typically close in 10-21 days—great for competitive markets.
• Unlimited Properties: No cap on how many properties you can finance.
• Credit Flexibility: Investors with credit scores as low as 640 may qualify.
Cons:
• Higher Rates: Expect rates between 7%–9% depending on experience, leverage, and market.
• Higher Down Payments: Often require 20–25% down.
• Prepayment Penalties: Many DSCR loans have penalties if paid off early (though these can sometimes be negotiated).
Example: Meet Sarah and David
Sarah is a full-time nurse with excellent credit and two rentals under her belt. She wants to purchase a third property and can document W2 income. A conventional 30-year loan is her best bet—it offers a low interest rate and she qualifies with ease.
David, on the other hand, is a full-time real estate investor with 15 rental properties under LLCs. His tax returns show minimal net income due to deductions. A DSCR loan is a no-brainer. The lender focuses on the rental income of the property, not David’s personal finances.
When to Use a DSCR Loan Instead
• You’re self-employed and your tax returns don’t reflect your true income.
• You want to buy in an LLC or under an entity structure.
• You’re scaling and already maxed out on conventional financing.
• You need to close fast to beat out the competition on a hot deal.
Pro Tip: Use Both Strategically
Savvy investors often blend both loan types. Use conventional financing for your first few properties to lock in lower rates, then switch to DSCR loans to scale quickly and stay liquid.
For example:
• First 4 properties: Use conventional 30-year loans.
• Property 5 and beyond: Use DSCR loans in your LLCs to continue scaling.
Final Thoughts
The best loan for you depends on your goals, portfolio size, and how fast you want to scale. A conventional loan offers low-cost, long-term stability—but it comes with restrictions. DSCR hard money loans are more flexible and faster, making them ideal for investors focused on growth and cash flow.
If you’re serious about building long-term wealth through real estate, knowing when and how to use each loan type can be a game-changer.
Need help deciding or want a quote on a 30-year DSCR loan?
📞 Reach out to our team—we specialize in helping real estate investors like you grow smarter and faster.