Is DSCR loan better than conventional for investment property?

It depends on your situation. Choose DSCR if: you're self-employed, have complex taxes, own multiple properties, or want faster closing. Choose conventional if: you have strong W-2 income, want lower rates (6.5-7.5% vs 7-9%), or are buying your first investment property. Compare both options.

DSCR Loan vs Conventional 2026: Which Is Better for Investors?

Q: What is the difference between DSCR and conventional loans?

DSCR loans qualify you based on the property's rental income (no personal income verification needed). Conventional loans require personal income documentation (W-2s, tax returns). DSCR is for investors only; conventional can be primary residence or investment. DSCR rates are higher (7-9%) but easier to qualify.

Q: What is a good DSCR ratio for a loan?

A DSCR of 1.0 means rental income equals mortgage payment (break-even). Most lenders require 1.0-1.25 minimum. A DSCR of 1.25+ is considered good and gets better rates. Example: $2,000 rent ÷ $1,600 PITIA = 1.25 DSCR. Higher DSCR = lower risk = better terms.

⚡ Quick Decision Guide

Choose DSCR if:

✅ You're self-employed or have complex income
✅ You own 5+ financed properties
✅ You want faster closing (no income docs)
✅ Property cash flows well (DSCR 1.0+)

Choose Conventional if:

✅ You have strong W-2 income
✅ You want the lowest rate possible
✅ You own fewer than 10 properties
✅ You can document income easily

Side-by-Side Comparison

Feature	DSCR Loan	Conventional
Income Verification	Rental income only	Personal income (W-2, tax returns)
Qualification Basis	Property cash flow (DSCR ratio)	Debt-to-income (DTI) ratio
Typical Rates (Feb 2026)	7.0-9.0%	6.5-7.5%
Down Payment	20-25%	15-25%
Credit Score	660-680+	620-680+
Property Limit	Unlimited	10 financed properties
Closing Time	2-3 weeks	4-6 weeks
Best For	Self-employed, portfolio investors	W-2 employees, first-time investors

What Is a DSCR Loan?

A Debt Service Coverage Ratio (DSCR) loan qualifies you based on the property's rental income, not your personal income. The lender looks at whether the property's rent covers the mortgage payment.

🧮 DSCR Formula

DSCR = Monthly Rent ÷ PITIA (Principal + Interest + Taxes + Insurance + HOA)

Example:

Monthly rent: $2,500
PITIA: $2,000
DSCR: $2,500 ÷ $2,000 = 1.25

A DSCR of 1.25 means the property generates 25% more income than needed to cover the mortgage.

What Is a Conventional Investment Property Loan?

A conventional loan for investment property works like a regular mortgage but with stricter requirements. You qualify based on your personal income, credit, and debt-to-income ratio.

Conventional loans typically have lower rates but require more documentation and have limits on how many properties you can finance (usually 10).

When DSCR Wins ✅

You're self-employed — No W-2s or tax returns needed
You have complex income — Multiple businesses, K-1s, etc.
You own 10+ properties — No limit on DSCR loans
You need fast closing — 2-3 weeks vs 4-6 weeks
Property cash flows well — Strong rental income
You want to scale quickly — Easier to get multiple loans

When Conventional Wins ✅

You have strong W-2 income — Easy to document
You want the lowest rate — 0.5-1.5% lower than DSCR
You own fewer than 10 properties — Within conventional limits
Property doesn't cash flow well — DSCR below 1.0
You want lower down payment — 15% vs 20-25%

Real Example: Same Property, Different Loans

Property: $400,000 rental | Rent: $3,000/month

DSCR Loan

Down payment: $100,000 (25%)
Loan amount: $300,000
Rate: 8.0%
Monthly P&I: $2,201
PITIA: $2,701
DSCR: $3,000 ÷ $2,701 = 1.11 ✅
Cash flow: +$299/month

Conventional Loan

Down payment: $80,000 (20%)
Loan amount: $320,000
Rate: 7.0%
Monthly P&I: $2,129
PITIA: $2,629
DTI impact: Added to your debts
Cash flow: +$371/month

Verdict: Conventional has better cash flow ($72/month more) and lower down payment. But DSCR is easier to qualify if you're self-employed or have many properties.

DSCR Requirements (2026)

Requirement	Typical Range
Minimum DSCR	0.75 - 1.25 (varies by lender)
Credit Score	660-680+ (700+ for best rates)
Down Payment	20-25%
Reserves	6-12 months PITIA
Property Types	1-4 unit, condos, townhomes
Loan Amount	$100K - $3M+

Frequently Asked Questions

What is the difference between DSCR and conventional loans?

DSCR loans qualify based on rental income (no personal income docs). Conventional requires W-2s and tax returns. DSCR rates are higher but easier to qualify.

What is a good DSCR ratio?

A DSCR of 1.0 is break-even. Most lenders require 1.0-1.25 minimum. A DSCR of 1.25+ is considered good and gets better rates.

Is DSCR better than conventional for investment property?

Choose DSCR if you're self-employed or own many properties. Choose conventional if you have strong W-2 income and want lower rates.