The question behind both loans is the same: will this debt get paid? They just look in different places for the answer. A conventional lender looks at you, and a DSCR lender looks at the rent roll.
What is the difference between a DSCR loan and a conventional loan?
A conventional loan is one written to Fannie Mae’s or Freddie Mac’s rulebook so it can be sold to them. That rulebook is public, and it is specific about you. Fannie Mae requires a 620 representative credit score on a manually underwritten fixed-rate loan and 640 on an adjustable one, while loans run through its automated system are judged differently: “A minimum credit score is not required for DU loan casefiles” (Fannie Mae B3-5.1-01, dated 04/22/2026). Either way, the file holds your pay stubs, your tax returns and your debt-to-income ratio.
A DSCR loan is not written to that rulebook. There is no agency standard for one, which is the first thing to understand about them: the down payment, the rate, the minimum coverage and the fees are each lender’s own policy, and they differ.
What makes that possible is that a rental loan is not a consumer mortgage in the first place. Regulation Z, the rule behind nearly every mortgage disclosure you have seen, says that “credit extended to acquire, improve, or maintain rental property (regardless of the number of housing units) that is not owner-occupied is deemed to be for business purposes” (CFPB, Regulation Z commentary 3(a)-4). Business-purpose credit sits outside the consumer mortgage rules, so a lender is free to underwrite the house instead of the borrower.
That same comment sets a limit on the idea. If the owner expects to occupy the property “for more than 14 days during the coming year, the property cannot be considered non-owner-occupied and this special rule will not apply.” A house you spend a month in each summer is not a business-purpose rental, whatever the loan is called.
What does each loan cost on the same house?
Take the calculator’s example house: $250,000, renting for $2,750 a month, $3,000 a year of property taxes, a $1,400 policy, and allowances of 5% of rent each for empty months, repairs and big replacements, plus 8% for a manager.
The conventional side is the calculator’s default: 20% down on a 30-year loan at 7%. For the DSCR side the example assumes 25% down and 7.75%, which is the shape most quotes take, a larger down payment and a higher rate. Both numbers are assumptions, not a rate sheet.
| Conventional | DSCR | |
|---|---|---|
| Rent | $2,750 | $2,750 |
| Empty months (5%) | −$138 | −$138 |
| Mortgage | −$1,331 | −$1,343 |
| Property taxes | −$250 | −$250 |
| Insurance | −$117 | −$117 |
| Repairs (5%) | −$137 | −$137 |
| Big repairs (5%) | −$137 | −$137 |
| Management (8%) | −$220 | −$220 |
| Cash flow each month | +$420 | +$408 |
These are example figures, not a quote.
The monthly payments land $12 apart, which is the surprise in this comparison. A rate three quarters of a point higher costs about $102 a month on the same $200,000 loan, but the DSCR side is borrowing $12,500 less, and the smaller loan hands most of that back.
The cash does not even out. The conventional loan takes $57,500 at closing and returns 8.8% a year on it. The DSCR loan takes $70,000 and returns 7.0%. Nearly all of the gap is the extra 5% down, not the rate.
How does a DSCR lender score the rent?
By dividing income by the debt it has to cover, which is where the name comes from. The catch is that lenders and calculators do not always divide the same things.
Many DSCR lenders compare the gross rent to the full housing payment: principal, interest, taxes and insurance. On this house that is $2,750 against $1,697, or 1.62 on the conventional loan and 1.61 on the DSCR one.
This site’s calculators use the stricter version. They take income after running costs and weigh it against the mortgage payment, which reads 1.32 and 1.30 on the two loans, and the page notes that most lenders want 1.25 or better. The difference between 1.61 and 1.30 is the vacancy, repairs, replacement and management allowances, and whether your lender counts them decides whether a marginal house qualifies.
Ask which formula a quote uses before you compare two of them. When the rent falls under a lender’s floor, the loan shrinks rather than the answer being no, and the DSCR loan requirements post works through what that does to the cash you bring.
Which loan asks less of you?
They ask for different things, so the honest answer depends on which you have more of.
A conventional loan asks for documented personal income, a debt-to-income ratio that still works after this payment, and a limit on how many financed properties you hold. It gives you the lowest rate and the smallest down payment of the two. Note that it counts only part of the rent toward your income, which is its own hurdle: see what a lender counts from a $2,750 rent.
A DSCR loan asks for a bigger down payment, a higher rate, and a house whose rent clears the lender’s coverage floor. It does not ask for tax returns, and it generally does not care how many rentals you already own. For a self-employed buyer whose returns show heavy deductions, or for a fifth property when the agency limit has run out, that trade is the whole point.
When is the higher rate worth paying?
Run both and compare the cash and the return, not the rate. Three things usually decide it.
- Whether you qualify conventionally at all. If you do, the arithmetic above is hard to argue with: more cash flow, less cash in, a better return.
- What the extra down payment would otherwise earn. The $12,500 difference here is buying a 1.8 point lower return on this deal. If it is also the deposit on a second house, the comparison is not between two loans.
- How long you hold. A DSCR loan you expect to refinance in three years costs you three years of the higher rate, not thirty. Check for a prepayment penalty before you plan on that, since many of these loans carry one and conventional loans do not.
What to ask before you apply
- Which coverage formula, and what is the floor. Gross rent over the payment, or income after costs. Get the number and the method together.
- The down payment at your credit score, and what the rate does at each step up.
- The prepayment penalty, its length and how it is calculated.
- Whether a market rent appraisal is used instead of your lease, and what happens if it comes in low.
- The total cash to close, points included, because that is the figure that changes the return most.
Put your price, rent and both rate quotes through the rental calculator and compare the cash flow and the cash-on-cash return side by side. The cheaper rate and the better deal are not always the same loan, and the cash a rental purchase needs lists every line that goes into the comparison.