Investment Loans vs DSCR Loans
2 min read
The Two Main Types of Investment Loans
Not all investment loans work the same way. When sellers buy a rental property, the bank will typically use one of two methods to approve sellers loan. The difference is not about the property type,both can be used for single-family homes and small apartments,but about how the loan is approved.
Traditional investment loans focus on the buyer's personal income, tax returns, and debt. DSCR loans focus on the property's income.
“A DSCR loan qualifies the property instead of the person.”
Why the Method Matters
DSCR stands for Debt Service Coverage Ratio. These loans require the property to support itself on paper. If the rent is higher than the mortgage payment and expenses, the property qualifies for the loan. If the rent is too low, the loan is denied, even if the buyer is wealthy.
Understanding this is key to seeing why some properties sell and others don't. A property that doesn't "pencil" for a DSCR loan is much harder to sell to an investor.