---
title: "DSCR loan vs conventional investment loan: pros and cons"
description: A conventional investment loan usually has the lower rate. A DSCR loan has the easier approval and fewer limits. If you have W-2 income, clean tax returns, and only a few properties, start with conventional. If you are self-employed, buying in an LLC, or growing a portfolio, DSCR is often the only one that works.
canonical_url: https://www.homeloannc.com/dscr/vs-conventional
last_updated: "2026-11-12"
---

# [DSCR loan vs conventional investment loan: pros and cons](https://www.homeloannc.com/dscr/vs-conventional)

> A conventional investment loan usually has the lower rate. A DSCR loan has the easier approval and fewer limits. If you have W-2 income, clean tax returns, and only a few properties, start with conventional. If you are self-employed, buying in an LLC, or growing a portfolio, DSCR is often the only one that works.

- **Updated:** 2026-11-12
- **Lower rate:** Usually conventional
- **Less paperwork:** DSCR
- **LLC ownership:** DSCR
- **Property cap:** 10 conventional / none DSCR

## Contact

- **Phone:** 910-520-6402
- **Address:** 2030 Eastwood Rd #12, Wilmington, NC 28403
- https://www.homeloannc.com/contact

## Actions

- [Request a quote from Tom Laakmann](https://www.homeloannc.com/contact)
  - No credit pull to review a scenario. Rates are quoted per property, not published.

## Side by side

|  | Conventional investment loan | DSCR loan |
| --- | --- | --- |
| Qualifies on | Your income, tax returns, and DTI | The property's rent against its payment |
| Down payment | Typically 15–25% | Typically 20–25% |
| Rate | Usually lower | Usually somewhat higher |
| Documentation | Full: returns, W-2s, pay stubs | Lease, appraisal, bank statements |
| Title | Personal name | Personal name or LLC |
| Financed-property limit | 10 | None |
| Prepayment penalty | None | Common; steps down, can be bought out |
| Foreign nationals | Difficult | Eligible |

## DSCR loan pros

- No tax returns, W-2s, or debt-to-income ratio
- Close in an LLC from day one
- No cap on the number of financed properties
- Each property stands on its own, so one deal does not block the next
- Faster, lighter underwriting

## DSCR loan cons

- Rates usually run above conventional
- A prepayment penalty is standard unless you pay to remove it
- 20–25% down, with no low-down-payment option
- The property must cash-flow on paper, which can be hard in high-priced markets
- Investment property only

## When conventional wins

If your documented income comfortably supports the new payment and you own fewer than ten financed properties, a conventional investment loan is usually cheaper over time. It has no prepayment penalty, and on a single-family rental it can require less money down.

## When DSCR wins

Self-employed investors whose tax returns show little income after write-offs. Anyone whose debt-to-income ratio is already stretched by existing rentals. Buyers who want the property in an LLC. Investors past the ten-property limit. Foreign nationals. In each of these cases the conventional loan is not a cheaper option, because it is not an available one.

Many investors use both: conventional loans for the first few properties, then DSCR once income documentation or the property count gets in the way. Tom prices both for every investor file and shows the numbers side by side.

## Is a DSCR loan a good idea?

It is a good fit when the property's rent covers the payment and conventional financing is impractical because of how your income is documented, how many properties you own, or how you want to hold title. If you qualify easily for conventional, compare both.

## What is the downside of a DSCR loan?

Mainly cost and flexibility: a somewhat higher rate than conventional, 20 to 25 percent down, and usually a prepayment penalty during the first years.

## Can I get a conventional loan for an investment property?

Yes. Conventional investment loans typically require 15 to 25 percent down and full income documentation, and you are limited to ten financed properties.

## Can I switch from a DSCR loan to a conventional loan later?

Yes, by refinancing, as long as you qualify at that time and the property is titled in your personal name. Check the prepayment terms on the DSCR loan first.

## Which one is faster?

DSCR loans are usually faster because there is no income to verify. The appraisal is typically what sets the timeline.

## Related

- [DSCR loan requirements](https://www.homeloannc.com/dscr/requirements)
  - What you need to qualify.
- [What drives DSCR rates](https://www.homeloannc.com/dscr/rates)
  - How far above conventional, and why.
- [DSCR for the self-employed](https://www.homeloannc.com/dscr/self-employed)
  - When tax returns understate income.
- [Conventional loans](https://www.homeloannc.com/programs/conventional)
  - The conventional program in detail.