Loan type
DSCR rental loans
Long-term rental financing qualified on the property's cash flow rather than your income. Not hard money, but the loan that most often repays it.
At a glance
| What it funds | Purchase or refinance of a rental you intend to hold |
|---|---|
| Qualifies on | Property cash flow (DSCR), not your tax returns |
| Typical DSCR floor | 1.20, sometimes 1.00 or below with pricing adjustments |
| Leverage | 75-80% purchase, 70-75% cash-out refinance |
| Term | 30 years, amortising; 5/1 and 7/1 ARMs also common |
| Rate | Typically 1-2 points above conventional investment pricing |
| Watch for | Prepayment penalties, commonly 5-4-3-2-1 or 3-year step-down |
A good fit when
The property is finished, leased or leasable, and the rent supports the payment with margin.
A poor fit when
The property is not habitable, the rent barely covers PITIA, or you will want to sell within the prepayment penalty window.
A DSCR loan is not hard money and it is important not to confuse them - a question Google surfaces constantly. It is a long-term, amortising rental mortgage that qualifies on the property's income instead of yours. It is included here because it is the exit for most hard money loans that are not flips.
How DSCR is calculated
Debt service coverage ratio is gross rent divided by PITIA - principal, interest, taxes, insurance and HOA. A 1.20 DSCR means rent covers the payment 1.2 times over.
The two DSCRs
Prepayment penalties are the main trap
Most DSCR loans carry one, commonly a five-year step-down (5-4-3-2-1% of the balance) or a three-year version. If there is any chance you will sell inside that window, price it: 3% of a $300,000 balance is $9,000, which can exceed the interest saving versus staying in shorter-term debt.
What to confirm before relying on it as your exit
- Maximum cash-out LTV, in writing.
- Seasoning requirement before the new appraised value can be used.
- Minimum DSCR, and whether they offer a no-ratio option and at what cost.
- Prepayment structure and how it is calculated.
- Whether they lend to your entity type and in that state.
- Whether a short-term rental or a mid-term lease counts as qualifying income.
Questions people actually ask
Can I get a hard money loan for the BRRRR method?
Yes, and it is one of the two main uses of the product. The hard money loan funds the buy and the rehab; the refinance into a long-term rental loan is the exit that repays it. The whole strategy lives or dies on that refinance, so the question to answer before you borrow is not whether you can get the hard money - it is whether the refinance will appraise and cash-flow.
Can hard money loans be refinanced?
Yes - that is the intended exit for any buy-and-hold deal. The refinance is normally into a DSCR rental loan, which qualifies on the property's rent rather than your income.
Two traps. Seasoning: many lenders will not lend against the new appraised value until you have owned the property for a set period, commonly six months; refinance before that and you may be capped at your purchase price plus documented rehab instead. Timing: if your hard money term is 12 months and your seasoning is 6, you have a narrow window, and appraisal delays eat it fast.
Are DSCR loans considered hard money loans?
No, though they are often sold by the same lenders and confused constantly. A DSCR loan is long-term rental financing - typically 30 years, amortising, qualified on the property's cash flow instead of your tax returns. Hard money is short-term, interest-only, asset-based bridge capital. They are complements, not substitutes: hard money buys and renovates the property, the DSCR loan takes it out.
What's the downside of a DSCR loan?
Rates above conventional owner-occupied pricing, prepayment penalties that are common and sometimes steep, a hard floor on the debt-service ratio that a vacancy can breach, and reliance on a market-rent opinion that may not match what you actually collect. It is still usually far cheaper than staying in hard money.
How risky is hard money lending?
For the borrower, the risk concentrates in the term ending before the exit is ready, and in the personal guarantee that usually sits behind the loan. For the lender, the risk is a collateral value that turns out to be wrong. The product is not inherently dangerous; a short term against an uncertain exit is.