DSCR Loans vs. Traditional Mortgages for Landlords

Growing your rental portfolio can feel like hitting a wall. Traditional lenders often stop investors once they reach income or property limits. That’s where DSCR loans come in. They focus on rental income instead of your personal paycheck, giving landlords more room to grow.

What Is a DSCR Loan?

A DSCR loan, or Debt Service Coverage Ratio loan, is based on the property’s ability to pay for itself. Lenders look at the rental income compared to the mortgage, taxes, insurance, and HOA fees if there are any. For example, a DSCR of 1.25 means the rental income is 25% higher than the property’s monthly costs. The stronger your DSCR, the better the terms you can get.

How Traditional Mortgages Work

Traditional mortgages rely heavily on your personal financial profile. Banks want to see stable W‑2 income, low debt-to-income ratios, and clean tax returns. Even when you own rentals, most banks only count about 75% of that rental income, which limits how many loans you can take on. This approach works well for first-time investors, but it quickly becomes a roadblock for landlords who want to scale.

DSCR vs. Traditional Mortgage: Side-by-Side

With a DSCR loan, your portfolio can grow without being tied to your personal tax returns. With traditional loans, your growth is limited by how much income you show on paper.

Who Should Use Which?

DSCR loans are ideal for:

– Landlords who maxed out their debt-to-income ratio.
– Investors who want to close in an LLC.
– Buyers looking to scale with unlimited property counts.
Traditional mortgages work best for:
– Borrowers with strong W‑2 income.
– Investors focused on securing the lowest possible rate.
– New landlords buying their first or second property.

Tips for DSCR Loan Approval

If you’re considering a DSCR loan, keep these points in mind:
– Aim for a DSCR of 1.20 or higher to lock in better pricing.
– Maintain at least six months of reserves per property.
The more financially stable you look, the easier approval becomes.

Final Thoughts

DSCR loans are not a replacement for traditional financing. Instead, they’re a tool that keeps landlords from stalling out when banks say no. By qualifying based on rental income, DSCR loans make it easier for investors to keep adding properties—even when personal income doesn’t tell the whole story. If you’re ready to grow your rental portfolio and want a lender that moves fast, Quick Real Estate Funding is here to help. We specialize in DSCR loans, fix-and-flip loans, and ground- up construction funding. Contact us today to see how we can finance your next deal. https://www.quickrealestatefunding.com/