How to choose: DSCR vs Hard Money Loans

You may be wondering whether a DSCR loan or a Hard Money loan is right for your next real estate investment or project. Here are 7 easy things to consider:

Term length: DSCR loans are long-term loans, typically 5-20 years. Hard money loans are short-term loans, typically 6-12 months.

Credit: DSCR lenders typically require a credit score of 680 or higher. Hard money lenders may not require a credit score, or they may have a lower credit score requirement.

Income: DSCR lenders typically require the property to have a minimum DSCR of 1.25. This means that the property's rental income must be at least 25% higher than the mortgage payment. Hard money lenders do not typically have income requirements.

Loan-to-value (LTV): DSCR lenders typically lend up to 80% LTV. Hard money lenders may lend up to 90% LTV for purchase price and 100% LTV for rehab costs.

Rehab costs: DSCR loans do not cover rehab costs. Hard money loans typically cover rehab costs up to 100%.

Experience: DSCR lenders and hard money lenders may require additional down payment from borrowers with less experience.

Property types: DSCR loans can be used to purchase rental properties only. Hard money loans can be used to purchase any type of real estate.

Which loan is right for you?

It depends on your specific needs and goals. If you're looking to purchase a rental property and hold it for the long term, a DSCR loan may be the better option. If you're planning to flip a house quickly, a hard money loan may be the better option.

If you're still not sure which type of loan is right for you, speak with someone who can help you assess your needs and goals and choose the best option for your situation.