DSCR loan or conventional investment mortgage — which is better for a rental?

THE NUMBERS

ILLUSTRATIVE — published program floors, not a quote or a commitment to lend. Subject to underwriting, appraisal and final credit approval.

What does each loan actually look at?

A DSCR loan divides the property's rent by its PITIA — principal, interest, taxes, insurance and any HOA. There is no debt-to-income test, no employment check, no tax returns and no W-2s at any point in the file. A conventional investment loan does the opposite: it underwrites you, through two years of returns, pay stubs or profit-and-loss statements, and a debt-to-income ceiling that every other mortgage you carry eats into. Two years of write-offs that lower your taxable income can sink a conventional file and are irrelevant to a DSCR one.

Is there really a cap on how many properties I can finance?

On the agency side, yes. Fannie Mae and Freddie Mac programs generally stop at ten financed properties per borrower, and the tests tighten well before that — larger down payments and more reserves from the fifth or seventh door onwards, depending on the program and the lender's overlays. DSCR lending has no such cap. Silt underwrites the rent roll and the sponsor, so an eleventh or a fortieth door is the same conversation as the first. That single difference is why most portfolios move to DSCR somewhere between doors four and eight.

How much more does a DSCR loan cost?

More, and how much more moves constantly. Across the market a DSCR rate typically sits somewhere between half a point and a point and a half above comparable conventional investment pricing, but that spread widens and narrows with the securitisation market and differs by lender, credit tier and leverage, so treat any single number as a snapshot rather than a rule. Silt's published grid runs from 6.125% at the strongest cell to 7.875% at the weakest, before adjustments. Compare a real quote against a real quote, not a rate against a headline.

What about holding title in an LLC?

Agency loans close in your personal name. You can transfer the property into an LLC afterwards, but that transfer trips the due-on-sale clause in the note — lenders rarely call the loan, and that is a tolerance rather than a right, so talk to your attorney before doing it. A DSCR loan closes in the entity from the start, with the members signing a personal guaranty. If entity title matters to you for liability or partnership reasons, DSCR gets you there without a workaround.

What about prepayment penalties and speed?

Conventional investment loans carry no prepayment penalty, which matters if you flip strategy or refinance often. DSCR loans do: on this sheet a 5-4-3-2-1 stepdown is par, 3-2-1 costs 25 basis points, a one-year term 50, and no penalty at all 87.5. Timing runs the other way. A conventional file waits on employment verification, tax transcripts and underwriter conditions on your personal finances; a DSCR file waits on an appraisal, title and an insurance binder, which is why 21 to 30 days from a signed term sheet is a realistic target here.

So which one should I take?

Take conventional when you are a documented W-2 or long-established self-employed borrower, buying your first or second rental, happy in your own name, and not in a hurry — the rate saving is real. Take DSCR when your returns understate your income, when you are past the agency property count, when title has to sit in an entity, when the seller wants a fast close, when the property is a short-term rental, or when you have no US credit file at all. Plenty of investors run both: agency on the early doors, DSCR from there on.

A worked example — what the rate difference is worth

The last two rows are the whole comparison in one line: on a $240,000 loan every full percentage point of rate is about $161 a month. Set that against what a conventional file costs you in time, documentation, entity title and the agency property cap, and the answer is usually obvious for your situation. Illustrative only — not a quote and not a commitment to lend.

WHAT WE NEED FROM YOU

• The rent. A signed lease, or the appraiser's market rent schedule if the unit is vacant.
• Taxes, insurance and HOA. Current figures, since they sit inside the DSCR test.
• Purchase contract. Or the payoff statement if you are refinancing.
• Entity documents. Articles, operating agreement and EIN letter — the loan closes in the entity.
• Two months of bank statements. Reserves are six months of PITIA.
• Schedule of real estate owned. Useful context, and no cap attaches to the count.

FREQUENT QUESTIONS

Does a DSCR loan show up on my personal credit?

Reporting practice varies by lender and servicer; many DSCR loans made to an entity do not appear on a personal credit file, but do not assume it — ask before you close.

Can I refinance a conventional loan into a DSCR loan later?

Yes, and investors do it regularly to free up agency slots or move title into an entity. It is a rate-and-term refinance and goes to 80% LTV on this sheet.

Is the down payment bigger on a DSCR loan?

Not usually. This sheet goes to 80% on a purchase, which is in line with typical conventional investment-property requirements.

Do I still need good credit for a DSCR loan?

Yes. Credit sets your pricing tier and the floor here is 660 — but there is no income or employment test behind it.

Which one is better for taxes?

That depends entirely on your structure and your books — confirm with your CPA before choosing on tax grounds.

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