Both of these hold a rental long term. They are underwritten on entirely different questions, and the choice between them turns on facts you can establish today rather than on preference.
A conventional loan asks: can this borrower afford this debt? It reads your tax returns, your W2s, your employment history and your debt to income ratio.
A DSCR loan asks: can this property afford this debt? It reads the rent against the payment. Your income is largely irrelevant.
The comparison
| Conventional | DSCR | |
|---|---|---|
| Qualifies on | Your income, DTI, tax returns | The property's rent against its payment |
| Tax returns | Required, usually two years | Not required |
| Employment history | Required | Not required |
| Self-employed | Difficult, income often averaged down | No obstacle |
| Financed property limit | Commonly ten | Generally none |
| Typical rate | Lower | Roughly 1 to 2 points higher |
| Typical closing time | 30 to 45 days | 14 to 21 days |
| Held in an LLC | Usually not permitted | Standard |
| Seasoning for cash-out | Often 12 months | Often 3 to 6 months |
| Prepayment penalty | Rare | Common, negotiable |
When conventional wins
Be honest about this, because DSCR is sold harder than it sometimes deserves.
If you have two years of documentable income, fewer than ten financed properties, no urgency, and the property covers itself comfortably, conventional is cheaper money and you should take it. A percentage point across thirty years is a large sum, and there is no prize for using the more specialised product.
Conventional also tends to win on primary-residence-adjacent strategies like house hacking, where owner-occupancy unlocks pricing and down payment terms no investor product will match.
When DSCR wins
You are self-employed, or your returns understate your income. The whole point of aggressive depreciation and expense deductions is a lower taxable income, and conventional underwriting reads that number literally. Investors routinely fail a DTI test on paper while being genuinely well capitalised. DSCR sidesteps the problem entirely.
You have hit the financed property limit. The ten property cap is the wall most growing portfolios hit, and it is the most common reason an investor moves to DSCR permanently.
You need speed. Fourteen to twenty-one days against thirty to forty-five. On a BRRRR where the bridge is accruing interest every day, three extra weeks is real money.
You are buying in an LLC. Standard on DSCR, generally not available conventionally.
You are exiting a BRRRR. Shorter seasoning is often decisive, and it is usually the deciding factor in whether your capital comes back in month five or month thirteen. See BRRRR seasoning.
The ratio, which is the whole test
DSCR is monthly rent divided by the monthly payment including principal, interest, taxes, insurance and any HOA.
Rent of $2,400 against a $2,000 all-in payment gives 1.20. Most lenders want 1.20 or better, some will go to 1.00, and a few below with pricing adjustments.
The consequence people miss: the ratio can cap your loan before the LTV does. A property might appraise at $300,000 and support 75% leverage on paper, but if $225,000 of debt produces a payment the rent cannot cover at 1.20, the loan comes back smaller. The property appraised fine and the loan still shrank.
This is the most common surprise in a DSCR refinance, and it is entirely predictable in advance. Run the ratio when you underwrite the purchase. Full mechanics in DSCR loan requirements.
The prepayment penalty
The item most likely to cost you unexpectedly.
DSCR loans commonly carry a prepayment penalty, often stepping down over three to five years. If you might sell or refinance inside that window, it is a real cost and it is negotiable: shorter terms and buyouts are usually available for a rate adjustment.
Ask before you sign, and price it against your actual plan for the property rather than your intention to hold forever.
How to decide
Work through it in order:
- Can you document income conventionally, without strain? If no, DSCR.
- Are you at or near ten financed properties? If yes, DSCR.
- Do you need to close in under thirty days? If yes, DSCR.
- Must it be held in an LLC? If yes, DSCR.
- Is this a BRRRR exit inside twelve months? Probably DSCR, on seasoning.
- None of the above? Take the conventional loan and the cheaper rate.
Then, whichever you chose, check the ratio and the seasoning with the actual lender in writing before you buy the property. Both are knowable in advance and both are expensive to discover late.
Where the bridge fits
If the property needs work before it can be rented, neither of these funds the purchase. That is bridge territory, and the sequence is bridge first, then refinance into whichever of these fits. The two loans have to agree with each other, which is the entire argument of BRRRR financing.
I write the bridge from $25K to $750K, and DSCR purchase and refinance from $75K to $1M+. Run the numbers in the deal calculators with the refinance tested against real rents, then send it over.