DSCR Loans vs Hard Money Loans: Which is Right?

If you’re a real estate investor, you’ve probably come across DSCR loans and hard money loans. But which one is better for your needs?

Both financing options serve different purposes. DSCR loans are ideal for long-term rental properties, while hard money loans are designed for short-term projects like fix-and-flips. Understanding their differences can help you choose the right loan based on your investment strategy, timeline, and financial situation.

By the end of this guide, you’ll have a clear understanding of how DSCR and hard money loans compare, their pros and cons, and which one aligns best with your real estate goals.

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Key Takeaways

DSCR loans are best for long-term rental properties, while hard money loans are ideal for short-term projects like fix-and-flips.

DSCR loans qualify borrowers based on property cash flow. No personal income verification is required, making them a great option for self-employed borrowers.

Hard money loans are asset-based and offer fast funding. They are best for house flippers and investors needing quick capital.

DSCR loans offer lower rates (6%–10%) and longer terms (15–30 years), while hard money loans have higher rates (8%–15%) and shorter terms (6–24 months).
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DSCR Loans vs. Hard Money Loans: Quick Comparison Table

DSCR loans and hard money loans serve different purposes in real estate investing. While DSCR loans are designed for long-term rental properties, hard money loans are best suited for short-term projects like fix-and-flips.

What is a DSCR Loan?

A Debt-Service Coverage Ratio (DSCR) loan qualifies borrowers based on a property's income potential rather than personal income or tax returns. Instead of using your debt-to-income ratio, lenders look at the property's rental income to determine if it can cover the loan payments.

Who It’s Best For

• Long-term real estate investors looking to finance rental properties.
• Buy-and-hold investors who want a low-documentation loan without income verification.
• Self-employed individuals or those with non-traditional income who may not qualify for conventional loans.

For Example

An investor purchases a $300,000 rental property with a projected monthly rent of $2,500. If the mortgage and expenses total $2,000/month, the DSCR is 1.25x, meaning the property generates enough income to cover loan payments. This makes it easier to qualify for financing.

What is a Hard Money Loan?

A hard money loan is a short-term, asset-based loan that relies on the property’s value rather than your personal income. These loans are typically funded by private lenders and have higher interest rates but offer faster approval and flexible terms.

Who It’s Best For

• House flippers looking for quick financing to buy, renovate, and sell properties.
• Investors needing fast cash who can’t wait for traditional loan approval.
• Borrowers who don’t qualify for conventional financing due to credit issues or lack of income documentation.

For Example

An investor finds a property priced below market value. They secure a 12-month hard money loan, use the funds to renovate the property, and sell it at a higher price within 6 months, repaying the loan with profits from the sale.

Differences Between DSCR Loans and Hard Money Loans

To help you quickly compare DSCR loans and hard money loans, here’s a breakdown of their key differences:

Benefits and Considerations

Both DSCR loans and hard money loans offer different advantages, depending on your investment strategy. Here’s a quick breakdown of their key benefits.

DSCR Loan vs. Hard Money Loan: How to Choose the Right One?

Choosing between a DSCR loan and a hard money loan depends on your investment goals and financial situation. Here’s how to determine which loan type is the best fit for you.

Which Loan Matches Your Investment Strategy?

Your choice depends on whether you’re investing for the long term or need short-term financing for a quick turnaround.

Choose a DSCR Loan If

• You plan to hold the property long-term and generate consistent rental income.
• You want lower interest rates and predictable monthly payments over 15–30 years.
• Your goal is to build a rental portfolio without relying on personal income verification.

Choose a Hard Money Loan If

• You’re flipping a property and need fast, short-term financing (6–24 months).
• You need funds quickly to buy, renovate, and sell a property.
• You’re comfortable with higher interest rates in exchange for fast approval and flexible loan terms.

Which Loan Fits Your Financial Needs?

Your financial situation also plays a role in deciding which loan is right for you.

FAQs 

Can I get a DSCR loan with no rental history?

Yes, but it depends on the lender. Some DSCR lenders accept projected rental income from tools like AirDNA, while others require at least 6 months of rental history.

Do hard money lenders check credit scores?

Most hard money lenders focus on the property’s value rather than your credit score. However, some lenders may still check credit to determine interest rates and loan terms.

Which loan has lower interest rates: DSCR or hard money loans?

DSCR loans generally have lower interest rates (6%–10%) because they are long-term loans. Hard money loans have higher rates (8%–15%) since they are short-term and carry more risk.

How quickly can I get approved for a DSCR loan vs. a hard money loan?

Hard money loans are usually approved within a few days to a week, while DSCR loans take 2 to 4 weeks since they require rental income verification.

Can I refinance a hard money loan into a DSCR loan?

Yes. Many investors use a hard money loan for fast financing and later refinance into a DSCR loan for lower interest rates and long-term stability once the property is rented.

Are DSCR loans available for short-term rentals like Airbnb?

Yes, some lenders offer DSCR loans for short-term rentals, but they may require higher DSCR ratios and proof of consistent rental income.

How Do I Decide Between a DSCR Loan and a Hard Money Loan?

Choosing the right loan depends on your investment strategy and timeline.

If you’re holding a property long-term, a DSCR loan offers lower interest rates and stable financing based on rental income.

If you need fast, short-term funding, a hard money loan provides quick access to capital without income verification.

If you’re flipping a property, a hard money loan is almost always the best option due to its short-term flexibility and fast approval process.

Looking for the right financing option for your real estate investment? Contact Truss Financial Group today to discuss your loan options and find the best solution for your investment strategy.