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in Avalon, CA
Avalon's unique real estate market on Catalina Island creates specific financing challenges. Conventional loans work well for primary residences and second homes, while DSCR loans serve investors who rent to tourists.
The island's vacation rental economy means many buyers need DSCR loans since personal income doesn't reflect rental potential. But if you're buying a place to live or visit yourself, conventional financing typically offers better rates.
Conventional loans require W-2s, tax returns, and debt-to-income ratios under 50%. You need 620+ credit for standard terms, though 740+ gets you the best rates.
These loans work for primary homes, second homes, and investment properties. Down payments start at 3% for owner-occupied homes but jump to 15-20% for investment properties or second homes in Avalon.
Lenders cap conventional loans at 10 financed properties per borrower. For Avalon's pricier waterfront units, you may hit conforming loan limits and need jumbo financing instead.
DSCR loans ignore your W-2 income entirely. Lenders approve you based on the property's rent divided by the monthly mortgage payment—that's your debt service coverage ratio.
You need a DSCR of 1.0 or higher, meaning rent covers the full payment. Most Avalon vacation rentals easily hit 1.25+ during peak season, but you'll price using conservative annual projections.
Expect 20-25% down and rates 1-2 points higher than conventional. No income docs, no tax returns, no DTI calculations. Credit minimums usually sit at 680, sometimes 660 for experienced investors.
Conventional loans check your pay stubs and tax returns. DSCR loans pull a rent schedule or appraisal instead. That's the fundamental split—one qualifies you, the other qualifies the property.
Conventional offers lower rates but strict DTI limits. If you own multiple rentals, that debt load kills conventional approval even when properties cash flow. DSCR loans don't count your existing mortgages against you.
Conventional caps at 10 financed properties and requires reserves for each one. DSCR loans let you scale past 10 properties with less cash parked in reserves, though you'll still need 6-12 months.
Choose conventional if you're buying a home to live in or vacation in yourself. The lower rates and smaller down payments make it the obvious pick for non-rental properties.
Choose DSCR if you're buying purely for rental income, especially if you're self-employed or already own multiple investment properties. The higher costs get offset by easier qualification and no DTI limits.
Avalon's short-term rental market makes DSCR loans particularly relevant here. But run the numbers—if your income supports conventional approval, the rate savings over 30 years often beat the convenience of DSCR.
No, DSCR loans require rental income to qualify. If you're not renting the property, you need conventional or another owner-occupied loan type.
Yes, but you must qualify using personal income, not rental projections. Lenders treat it as an investment property requiring 15-20% down.
DSCR loans use annualized rent projections, smoothing seasonal fluctuations. Conventional lenders may struggle with inconsistent vacation rental history.
Yes, investors often refinance conventional loans into DSCR loans to free up DTI for future purchases. You'll pay higher rates but eliminate personal income requirements.
Both loan types work on Catalina Island. Some lenders restrict DSCR loans to mainland properties, so confirm your lender finances island real estate before applying.