Editorial Integrity
Making informed real estate decisions starts with having the right knowledge. At HomeAbroad, we offer US mortgage products for foreign nationals & investors and have a network of 500+ expert HomeAbroad real estate agents to provide the expertise you need. Our content is written by licensed mortgage experts and seasoned real estate agents who share insights from their experience, helping thousands like you. Our strict editorial process ensures you receive reliable and accurate information.
Key Takeaways:
1. DSCR loans make it easier to qualify compared to conventional loans, as they rely on the property's rental income rather than personal tax returns or job history.
2. DSCR loans allow global investors to expand their portfolios faster than conventional loans, which limit them with debt-to-income rules.
3. DSCR loans are more accessible for international real estate investors because they don't require a US credit history or income proof in comparison to conventional loans.
4. DSCR loans offer more flexibility in financing and refinancing over conventional loans, which have more stringent regulations.
Are you in the real estate market for a new house or looking to refinance your current loan? If so, choosing the right type of loan that fits your unique financial needs is essential. Two popular options that investors and homeowners often compare are DSCR (Debt Service Coverage Ratio) loans and conventional mortgages.
Having worked with global real estate investors and homebuyers for years, I’ve seen how the right financing strategy can drastically impact cash flow, property growth, and long-term wealth. Many of my investor clients often ask whether a DSCR loan for rental properties makes more sense than sticking with a traditional conventional loan, and the answer depends on your goals, income structure, and portfolio strategy.
In this guide, we’ll break down DSCR loan requirements, the advantages of conventional home loans, and key differences that matter when building your real estate portfolio or buying a primary residence. By the end, you’ll have a clear understanding of which loan option gives you the best path forward, whether you’re scaling your investments or securing financing for your dream home.
Table of Contents
DSCR Loan Vs. Conventional Loan: Which One Suits Your Investment Goals?
DSCR Loan | Conventional Loan |
|---|---|
No DTI restrictions | DTI requirement of 45% |
Higher interest rates | Lower interest rates |
Easier to qualify | Strict qualifications |
Higher Down Payment | Lower Down Payment |
No PMI Premiums | PMI premiums are required |
Easy Cash Flow | Larger operating expenses |
Best for Investment Properties | Best for Residential Purchase |
Finance Multiple Properties | Limited to one property |
No Income Verification | Need to provide Income Documentation |
Flexible Repayment Terms | Rigid Repayment Terms |
Cannot use for Financing Residential Property | Fewer restrictions on the usage of funds |
Quick approval process | Long approval process |
No employment verification | Employment verification check and pay slips are required |
Which Loan is Best for International Real Estate Investors?
Let us now explore these differences between DSCR loans and conventional loans in detail to help you determine if a DSCR loan is right for your financial needs.
1. DTI (Debt-to-Income) Requirements
When considering a loan, one of the first criteria lenders examine is your Debt-to-Income Ratio (DTI).
This ratio is determined by dividing your gross income by your monthly debt obligations, including rent/mortgage payments, auto loans, student loans, and other credit or instalment accounts. The higher the DTI, the more your rental income will be used to pay the debt.
- DSCR Loans: DSCR loans don’t have debt-to-income (DTI) restrictions. That means borrowers won’t have to worry about having a too high DTI ratio and being denied the loan. It allows borrowers more flexibility in their borrowing power and could help them secure a loan even if their DTI ratio is too high for a conventional mortgage.
- Conventional loans: They have a debt-to-income (DTI) ratio requirement of 45%. If the borrower’s DTI exceeds this amount, they will not qualify for the loan. It can be a substantial challenge for those with high debt payments.
Verdict: The DSCR loan has an edge regarding debt-to-income requirements because DSCR lenders don’t consider DTI for loan qualification.
2. Interest Rates
Interest rates are the money a lender will charge you for borrowing funds. Regarding DSCR and conventional loans, it’s crucial to understand how lenders calculate the interest rate and what factors influence it.
- Conventional Loans: Conventional loans typically offer lower interest rates compared to other types of financing. Additionally, the lender does not have to pay for government insurance or guarantee fees, which can help keep costs down.
- DSCR Loans: On the other hand, DSCR loans generally have slightly higher interest rates than conventional financing. As lenders have a higher risk associated with DSCR loans and offer more flexibility, they charge higher interest rates; however, these rates fluctuate over time.
Verdict: Conventional Mortgages are the winner regarding interest rates, as conventional loans typically have lower interest rates.
3. Easier to Qualify
When choosing between a debt service coverage ratio (DSCR) loan and conventional financing for your real estate investment, one of the key differences is that DSCR loans are easier to qualify for.
It primarily benefits those with a short history as real estate investors or limited financial resources.
- DSCR Loans: Since DSCR loans consider the property’s rental income, DSCR loans are more accessible for foreign investors to qualify for. Therefore, it makes them attractive for global real estate investors purchasing rental properties.
- Conventional Loans: A significant drawback of traditional loans is that they often require stricter qualifications than other financing options. For example, borrowers must have a strong credit history, a stable income, and a solid debt-to-income ratio.
HomeAbroad’s DSCR loans qualify you based on a property’s rental income relative to mortgage payments. A standard DSCR loan requires the monthly gross rent to be equal to or greater than the mortgage payment (PITIA), which means a DSCR of 1.0 or higher is the ideal scenario for securing the best loan terms.
However, not all properties will meet this threshold, so we also offer our No-Ratio DSCR Program for properties with a DSCR between 0 and 1. This option allows investors to still qualify for financing, but it comes with a slightly larger down payment (a 5% hit to LTV) and higher interest rates. This program focuses less on rental income and more on other factors, giving investors with strong long-term plans the opportunity to secure financing.
You can use HomeAbroad’s DSCR ratio calculator to determine the DSCR ratio of the property, providing clarity on your future investment and its potential profitable outcome.
Furthermore, the place must pass a property appraisal, which can add to the loan cost. You can also learn about DSCR loans and the process of getting one; this guide is for you.
Verdict: The DSCR Loan is the winner in terms of easier qualification, as it has less stringent requirements in terms of credit history and income levels.
4. Down Payment
When obtaining a loan, a down payment is an essential factor to consider. A down payment is the money you must pay up front when taking out a loan.
Generally, larger down payments can result in lower monthly payments over the life of a loan and also help reduce the risk for lenders.
- Conventional Loan: Another edge of traditional loans is that borrowers can purchase a home with a smaller down payment than other loan options. Generally, conventional loans require a minimum down payment of 5% to 20%.
- DSCR Loan: DSCR loans typically require a 25% down payment for international real estate investors. As a result, it can make them less attractive for borrowers with limited funds for a down payment.
Verdict: Conventional Mortgages are the winner when it comes to down payments, as they require a lower down payment than DSCR loans require. If you buy an investment property with a conventional mortgage, the down payment will be slightly higher, at 20%.
5. PMI Premiums
PMI premiums are a type of insurance that mortgage lenders require when the loan-to-value ratio exceeds 80% (meaning the borrower has put down less than 20% of the property’s value).
The premium protects lenders in the event that borrowers default on their loans.
- Conventional Mortgage: Private mortgage insurance (PMI) premiums are required on traditional loans with a down payment of less than 20%. Therefore, it can improve the value of the loan. However, PMI premiums may cease once the borrower has repaid a sufficient portion of their loan balance or if the home’s value appreciates significantly.
- DSCR Loans: In contrast, DSCR loans don’t require PMI premiums. As a result, borrowers can save money in the long run if their loan balance returns or the property appreciates significantly in value.
Verdict: The DSCR Loan is the winner regarding PMI premiums, as DSCR loans don’t require PMI Premiums since the lender focuses on the rental property’s ability.
6. Cash Flow
When determining the affordability of a DSCR loan versus a conventional loan, cash flow is the critical metric to assess whether a borrower can afford a monthly mortgage payment.
Cash flow is the part left over after you pay out the expenses from gross rental income or other forms of payment.
- DSCR Loan: It is easier to manage positive cash flow with a DSCR loan. The lender must consider a borrower’s rental income to ensure the borrower has sufficient cash flow to afford the loan payments.
- Conventional Mortgage: Conventional loans require solid proof of personal income or bank statements and consider the borrower’s debt obligations. Traditional loans require more considerable operating expenses than other financing options, such as DSCR. As a result, it can make them less attractive to borrowers with limited funds.
Verdict: The DSCR Loan is the winner in terms of cash flow, as it requires a lower income level and considers the rental income generated by the property to help borrowers maintain sufficient cash flow.
7. Occupancy
Occupancy is a critical factor for both DSCR and conventional mortgages. It refers to the use of property, whether you use it for personal use or as a rental property, and how long you plan to reside in it.
- DSCR Loans: When you plan to purchase a property for personal use, such as living in it, a debt service coverage ratio (DSCR) loan won’t be an option. DSCR loans are a feasible option for investment properties; if you want to buy a primary residence, bank statement mortgages are a better option if you can’t get a conventional mortgage.
- Conventional Loans: Conventional financing provides more flexibility. You can purchase an owner-occupied home, a second home, a vacation home, or an investment property with this type of loan, even though rates and upfront costs may vary depending on the intended occupancy.
Verdict: The Conventional Loan is the winner in terms of occupancy, as it offers more flexibility for various types of occupancy.
8. Loan Amount
The loan amount is the money borrowed from a lender for a specific purpose. For real estate investors, this generally includes a property’s purchase price and closing costs.
Depending on the type of loan product selected, the basis for determining loan amounts is either the property’s value or rental income.
- DSCR Loan: The typical basis for DSCR loans is a property’s rental income, so the property’s potential rental income determines the loan amount. As a result, seasoned real estate investors can take out larger loans than they would be eligible for with other types of financing. HomeAbroad’s minimum DSCR loan amount is $100k.
- Conventional Loan: Conventional loans can be for smaller amounts, such as a single-family home or a duplex. The loan quantity is generally based on the property’s value and may require larger down payments than DSCR loans.
Verdict: The DSCR Loan is the winner in terms of loan amount, as it can offer higher loan amounts than conventional loans.
9. Repayment terms
The repayment terms are the details of how and when a loan must be repaid, including the interest rate and other associated costs.
When evaluating DSCR or conventional loans, it is essential to understand how repayment terms can impact your decision.
- DSCR Loan: DSCR loans also often have more flexible repayment terms. For example, you can select fixed or adjustable-rate mortgages and other loan repayment options and structures. Lenders may also offer opportunities to make an extra payment each year or pay off the loan early without incurring a penalty.
- Conventional Loan: Conventional loans typically have stricter repayment terms and require a fixed monthly payment that remains unchanged.
Verdict: The DSCR Loan is the winner in terms of repayment terms, as conventional loans have strict repayment terms compared to DSCR loans.
If you’re looking for a DSCR loan, HomeAbroad specialises in DSCR loans and offers the most competitive loan terms to our customers. Get a quote today!
10. Approval Process
An approval process is a structured workflow that involves a series of steps to review, authorise, and monitor a request, document, or action.
It helps ensure that all relevant parties have reviewed and agreed to a decision before it is complete, reducing errors and ensuring compliance with company policies and procedures.
- Conventional Mortgage: Conventional loans often have a longer approval process. As a result, it can delay the loan’s closing and make it less attractive for those who need to close quickly.
- DSCR Loan: In contrast, DSCR loans can close quickly, as the lender only needs to verify the property’s cash flow, rather than the borrower’s income. Consequently, it makes it simpler for real estate investors to acquire rental properties quickly, often completing the entire process within just 30 days.
Verdict: The DSCR Loan is the winner in terms of the approval process. Since fewer verifications are required, it’s only plausible to complete the approval quickly.
If you want to possess a rental property, a DSCR loan is likely the best option.
11. Employment Check
When deciding between a DSCR and a conventional loan, it’s essential to understand the differences in the employment checks conducted by each lender.
- DSCR Loan: DSCR loans don’t require an employment check. The lender does not need to verify your income source or job security when approving a DSCR loan.
- Conventional Mortgage: Conventional loans require an employment verification process to determine a borrower’s ability to make timely payments. Moreover, they will also need pay slips and other evidence to validate the borrower’s income source.
Verdict: The DSCR Loan is the winner for employment checks, as conventional mortgages need income and job security documentation. DSCR lenders don’t consider these factors when deciding whether or not to approve your loan.
12. Personal Income Verification
Regarding loan approval, lenders must verify your income to understand your capability to repay the loan. Therefore, it is essential to consider when deciding between a DSCR loan and a conventional loan.
- DSCR loans: DSCR loans don’t require income verification. It means the lender doesn’t need to review a borrower’s tax returns or proof of income to determine their eligibility for the loan.
- Conventional Mortgage: Conventional loans typically require income verification to demonstrate that a borrower has sufficient funds to cover their loan payments, which is generally accomplished by presenting bank statements or other financial documents that verify income. As a result, it can be more demanding for self-employed borrowers with multiple income sources.
Verdict: The DSCR Loan is the winner for income verification since conventional mortgages require pay stubs, tax returns, and many more, whereas DSCR loans don’t consider your income.
13. Finance Multiple Properties
Real estate investors face a crucial decision when financing multiple properties. Should they pursue a debt service coverage ratio (DSCR) or a conventional loan?
When deciding which option is best, it’s essential to comprehend the differences between these two loans and how each could affect your investment goals.
- DSCR Loan: DSCR loans can also help investors finance multiple properties at once. Since DSCR lenders consider the property’s rental income, they are more likely to approve the loan. As a result, it could help global investors diversify their portfolios and purchase multiple properties with a single loan.
- Conventional mortgage: Conventional mortgages are usually limited to one property purchase at a time. Therefore, it can be challenging for investors seeking to quickly expand their portfolios.
Verdict: The DSCR Loan is the winner for financing multiple properties because conventional loans are limited to one property, compared to a DSCR loan, where you can grow your real estate portfolio.
14. Best for Investment Properties
Investment properties are an excellent way to generate income and build wealth; however, securing funding can be time-consuming and requires significant effort. For international real estate investors, the debt service coverage ratio (DSCR) and conventional loans offer unique advantages.
But which loan is best for your investment property? Firstly, let’s take a closer look at the DSCR loan vs. the conventional loan so you can understand the differences.
- DSCR Loan: DSCR loans are ideal for a real estate investor looking to finance an investment property. The lender considers the rental income generated from the property, rather than relying solely on the borrower’s income. It makes it easier for foreign investors to qualify for and obtain a loan, while having ample cash flow to make timely payments and manage their investments.
- Conventional Mortgages: Conventional loans are typically best suited for residential purchases. However, they require income verification and may be more challenging to qualify for if the borrower can’t meet the strict qualification criteria.
Verdict: The DSCR Loan is the winner and gets the upper hand when investing in properties, as it is specifically designed for real estate investors.
15. Restrictions on the Use of Funds
Restrictions on using funds refer to specific guidelines or limitations on the expenditure of funds.
Funding organisations or donors impose these restrictions to ensure that the funds are used for their intended purpose and to prevent misuse or mismanagement.
- Conventional Loan: Conventional loans also have fewer restrictions on the use of funds than other types of loans. As a result, borrowers can use them to purchase a primary residence, an investment property, or even to refinance an existing mortgage.
- DSCR Loans: In contrast, DSCR loans are for rental property purchases or to refinance existing mortgages. As a result, borrowers cannot use them to purchase a primary residence and have limited flexibility in using the funds for other purposes.
DSCR loans are only available for commercial and investment properties. They are not used to finance residential property.
Verdict: The Conventional Loan is the winner regarding restrictions on using funds, as DSCR loans are intended for commercial and investment properties, not residential ones.
DSCR loans can be an excellent financing option for businesses and real estate investors. However, examining the potential challenges of a DSCR loan is crucial before taking out a loan.
16. Ownership of the Property in an Entity’s Name
Ownership property in an entity’s name refers to assets, such as real estate or equipment, legally owned by a business entity rather than an individual. It offers benefits like liability protection, tax advantages, and ease of transferring ownership.
- Conventional Mortgage: A traditional loan that allows property ownership in an entity’s name, provided the borrower meets the credit requirements.
- DSCR Loan: DSCR loans also typically allow property ownership in an entity’s name. It makes it easier for real estate investors to transfer ownership as needed without having to go through the procedure of reapplying for a loan or changing the borrower’s name on the loan agreement.
Verdict: Conventional and DSCR loans both allow property owners to be listed in an entity’s name, making it a tie.
Understanding their differences is crucial in finding the best loan for your business needs.
Which Loan is Best for Real Estate Investors?
Both DSCR and conventional loans can be beneficial options for real estate investing. However, the best choice will rely on your financial situation, needs, and goals.
- If you are a foreign national investor seeking a mortgage that is easier to qualify for and offers flexible repayment terms, a DSCR loan may be the right choice for you, especially if you are looking for investment properties.
- However, a conventional loan may be more suitable if you have a good credit score and a stable income, such as for domestic investors.
Ultimately, it is essential to research both types of loans and examine their potential advantages and challenges before making a decision. It will help you make intelligent choices when financing your real estate investments.
This consideration lets you choose the best option for your unique needs. If you plan to obtain a DSCR loan, HomeAbroad allows you to qualify for a DSCR loan with the best loan terms suited for your specific investment goals.
Pre-qualify for a DSCR Loan in a Few Clicks.
No Paystubs, W2s, or Tax Returns Required.
5 Things to Remember When Deciding Between DSCR Loan Vs. Conventional Loan
There are five things that everyone should remember when looking at a DSCR Loan vs. a Conventional Loan to help you make an informed decision. They are as follows:
- DSCR loans have higher interest rates than conventional loans but no DTI requirements.
- Conventional loans have stricter qualification requirements and a longer approval process.
- DSCR loans are best suited for real estate investment properties, whereas conventional loans are more suitable for primary residences.
- DSCR loans offer flexible repayment terms and are generally easier to qualify for than conventional loans.
- Conventional loans offer lower interest rates but require PMI premiums and a DTI ratio of 45%.
Contact HomeAbroad today if you’re determined to obtain a DSCR loan, and we’ll connect you with a reputable DSCR lender who can offer you the most favourable terms.
DSCR Loans vs. Conventional Loans: Choosing the Right Path for Your Real Estate Journey
When deciding between DSCR loans and conventional loans, the right choice depends on your financial situation, investment goals, and risk tolerance. While conventional loans remain a strong option for those with verifiable income and established credit history, DSCR loans can be particularly valuable if you cannot show personal income or are focused on building real estate investments.
For foreign nationals seeking to invest in residential properties, primary residences, or short-term rentals, without a US credit history, HomeAbroad offers more flexible mortgage solutions tailored to your needs.
HomeAbroad is a one-stop PropTech and FinTech platform dedicated to simplifying the process of buying US real estate for international real estate investors. From providing an AI-driven investment property search platform to tailored mortgages for foreign nationals, HomeAbroad ensures that global investors and US newcomers can overcome challenges such as limited credit history.
With a trusted network of over 500 expert US real estate agents and comprehensive concierge services, HomeAbroad supports clients at every step from forming LLCs and opening US bank accounts to securing homeowners’ insurance and coordinating property management.
By combining cutting-edge technology with personalised expertise, HomeAbroad empowers global investors with the tools, resources, and support needed to succeed in the US real estate market. Apply today and take the first step toward your US property journey with HomeAbroad.
Frequently Asked Questions
Is the DSCR loan worth it?
The DSCR loan may be worthwhile for individuals without an established US credit history or those who cannot demonstrate sufficient personal income, as the DSCR loan focuses on the property’s rental income rather than personal income.
It can be a fantastic option for making real estate investments as it offers competitive interest rates and flexible repayment terms.
Can I live in a home bought with a DSCR loan?
Yes, you can live in a home bought with a DSCR loan. However, it is critical to observe that the loan finances rental properties rather than primary residences.
Do banks offer DSCR loans?
No, banks do not typically offer DSCR loans. Instead, they usually specialise in conventional loans that require a higher credit score and personal income.
If you’re interested in a DSCR loan, you can connect with HomeAbroad and quickly get started through our network of DSCR lenders.
What credit score do you need to get a DSCR loan?
International real estate investors typically do not require an established US credit score to qualify for DSCR loans, making it easier to expand their real estate investment portfolio with ease and flexibility.
Can a first-time investor get a DSCR loan?
Yes, a first-time investor can get a DSCR loan. However, the loan is available to all individuals regardless of experience in real estate investing.
Is cash-out refinancing available for DSCR loans?
Yes, HomeAbroad offers cash-out refinancing options for DSCR loans, allowing foreign investors to extract equity from their properties for further investments or renovations.
![DSCR Loans: What It Is & How to Apply in [2025]](https://homeabroadinc.com/wp-content/uploads/2022/06/DSCR-loans-guide.jpg)
![DSCR Calculator [2025]: Calculate Your DSCR](https://homeabroadinc.com/wp-content/uploads/2023/04/DSCRcalculator.jpg)
