DSCR vs. conventional for an investment property
Both finance rentals. The difference is what does the qualifying. A conventional investment loan underwrites you: tax returns, debt-to-income, W-2s. A DSCR loan underwrites the property: if the rent covers the payment the deal qualifies, even when write-offs leave your tax returns thin.
- Qualifies on
- DSCRThe property's rental income (debt-service coverage)
- Conventional (investment)Your personal income, tax returns and DTI
- Minimum down (purchase)
- DSCR20% (80% LTV)
- Conventional (investment)20%
- Tax returns required
- DSCRNo
- Conventional (investment)Yes, full documentation
- Loan range
- DSCR$75K–$3M
- Conventional (investment)$75K–$5M; jumbo above county conforming limits
- Credit
- DSCRNo minimum FICO; below 620 is capped at 50% LTV
- Conventional (investment)620 minimum; below it, a much larger down payment
- Where
- DSCREvery state except South Dakota, North Dakota and Vermont
- Conventional (investment)29 licensed states
- Seasoning to cash out
- DSCRNone on loans of $100K or more: today's appraised value counts right away (6 months under $100K)
- Conventional (investment)Typically 6–12 months, depending on the lender
- Choose it when
- DSCRWrite-offs shrink your taxable income, you own through an LLC, or you're past the conventional property count
- Conventional (investment)Your documented income is strong and you want the sharpest pricing
HELOC vs. cash-out refinance vs. HEA
Three ways to turn equity into cash. The deciding question is almost always what happens to the first mortgage you already have. A HELOC leaves it alone, which matters if you locked a low rate. A cash-out refinance replaces it. A home equity agreement takes the monthly payment off the table in exchange for a share of the home's future value.
- Keeps your current first mortgage?
- HELOCYes, it sits behind it
- Cash-out refinanceNo, it replaces it
- HEAYes
- Monthly payment
- HELOCYes, on what you draw
- Cash-out refinanceYes, a new full payment
- HEANone; settled when you sell, refinance or buy it out
- Amount
- HELOC$50K–$5M, up to 90% combined LTV
- Cash-out refinanceInvestor refinance: $75K–$5M, up to 75% LTV. On a home you live in: conventional or FHA to 80%, VA to 100%
- HEA$50K–$600K
- Seasoning required
- HELOCNo title seasoning (Texas adds a 12-day wait before closing)
- Cash-out refinanceNone on DSCR refinances of $100K or more (6 months under $100K)
- HEANone
- Credit floor
- HELOC620, no exceptions
- Cash-out refinance620+ for most programs
- HEAAccepted from the 500s
- Speed
- HELOCAs little as 5 business days, no appraisal
- Cash-out refinanceA few weeks is typical
- HEAA few weeks end to end
- Where
- HELOC29 licensed states, primary or investment
- Cash-out refinanceInvestment: most states. Home you live in: 29 licensed states
- HEA12 states
- Choose it when
- HELOCYour first-mortgage rate is low and you want speed
- Cash-out refinanceYou want one payment, or today's rates favor a full reset
- HEAA payment doesn't fit the budget, or credit rules out the other two
Texas: state law caps home-equity lending at 80% combined LTV and adds a 12-day waiting period. VA and FHA cash-out refinances aren't available on a Texas homestead.
Self-employed: P&L only vs. full-doc conventional
Tax strategy and mortgage qualifying pull in opposite directions: every legitimate write-off lowers the income a conventional underwriter sees. A P&L-only loan gets around that. One profit-and-loss statement is the whole income file, with no tax returns, no bank statements and no deposit reviews.
- Income file
- P&L onlyOne P&L from a CPA or licensed tax preparer (self-prepared options exist)
- Conventional full-docTwo years of tax returns, W-2s or 1099s, and bank statements
- Do write-offs hurt you?
- P&L onlyNo
- Conventional full-docYes, they reduce qualifying income
- Credit
- P&L only640+
- Conventional full-doc620+
- Minimum loan
- P&L only$150K
- Conventional full-doc$75K
- Down payment (purchase)
- P&L only20% at 680+, 25% at 660–679, 30% at 640–659; 20% minimum on investment
- Conventional full-doc3% for first-time buyers, 5% standard; 20% on investment
- Choose it when
- P&L onlyYour returns understate what you actually earn
- Conventional full-docYour documented income already qualifies you
Hard money vs. DSCR for investors
Hard money buys speed and flexibility: asset-based approvals for flips, bridges, unusual properties, or credit a DSCR loan can't price. DSCR buys cheaper long-term money for a stabilized rental. Many investors use both, closing fast with hard money and refinancing into DSCR once the property is rented.
- Underwrites
- Hard moneyThe asset
- DSCRThe rent against the payment
- Purchase minimum down
- Hard money10% with a 700+ FICO (3.5 points); 15% below 700
- DSCR20%
- Loan range
- Hard money$75K–$5M
- DSCR$75K–$3M
- Where
- Hard moneyInvestment: most states. Home you live in: Oregon, Washington and California
- DSCREvery state except South Dakota, North Dakota and Vermont
- Best for
- Hard moneyFlips, bridges, speed, unusual files
- DSCRStabilized long-term rentals
Good to know.
What is the minimum down payment for an investment property?+
At least 20% on DSCR, rental, conventional and P&L-only purchases. Hard money is the exception: 10% down with a 700+ FICO, which carries 3.5 points, or 15% down below 700. With credit below 620, expect 50% down on a DSCR, rental or hard money purchase.
DSCR or conventional for a rental property: which should I choose?+
A DSCR loan qualifies on the property's rent with no personal tax returns, which suits you when write-offs shrink your taxable income or you own through an LLC. A conventional investment loan underwrites your personal income and DTI and usually prices best when that income documents well. Both need 20% down on a purchase.
HELOC or cash-out refinance if my first-mortgage rate is low?+
The HELOC usually wins. It sits behind your first mortgage without touching it, can fund in as little as 5 business days with no appraisal, and goes up to 90% combined LTV. A cash-out refinance replaces the whole first mortgage, which is worth it mainly when you want one payment or today's rates favor a reset.
Can I get a mortgage without tax returns?+
Yes. A P&L-only loan qualifies on one profit-and-loss statement, with no tax returns and no bank statements, from 640 credit and $150,000. A bank-statement loan uses 12 to 24 months of deposits. A DSCR loan needs no personal income documents at all: the property's rent does the qualifying, on investment properties only.
What credit score do I need for each program?+
HELOC: 620, a hard floor. P&L only: 640, or 680 for a P&L-documented second-position HELOC. Conventional: 620. FHA: 620 for purchases and cash-out. VA: flexible, with 10% down on a purchase below 620. DSCR, hard money and investor cash-out: flexible, with more equity required below 620. HEA: accepted from the 500s.
How fast can each program fund?+
The HELOC funds in as little as 5 business days, because an automated valuation replaces the appraisal and no tax returns are reviewed. Hard money closes in days. Most other programs take a few weeks. Texas home-equity loans carry a 12-day waiting period by state law.