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in Santa Monica, CA
Santa Monica's rental market attracts both homebuyers and real estate investors. Conventional loans work for most primary residence purchases, while DSCR loans cater specifically to rental property investors.
The main split: conventional loans scrutinize your W-2 income and tax returns. DSCR loans ignore your personal income entirely and qualify you based on what the property generates in rent.
Most Santa Monica buyers start with conventional financing. But if you're growing a rental portfolio or have high write-offs that suppress your taxable income, DSCR loans open doors conventional underwriting would close.
Conventional loans remain the gold standard for primary residence buyers. You'll need documented income, a 620+ credit score, and typically 3-20% down depending on the property and your profile.
Rates are usually the lowest you'll find anywhere. Lenders price conventional loans aggressively because government-sponsored enterprises like Fannie Mae back most of them, reducing lender risk.
These loans work great for Santa Monica buyers with stable W-2 income who plan to live in the property. You can also use them for second homes or investment properties, but expect higher rates and down payment requirements on rentals.
DSCR loans qualify you based on one metric: does the rent cover the mortgage payment? If your rental income divided by the total housing expense hits 1.0 or higher, you're in the game.
No tax returns. No pay stubs. No employment verification. Lenders calculate a debt service coverage ratio using market rent data and the proposed mortgage payment, then make their decision.
Investors use DSCR loans when their personal income doesn't tell the real story. High write-offs, multiple LLCs, or irregular 1099 income all make conventional underwriting painful. DSCR loans bypass that entirely.
Qualification method separates these loans completely. Conventional underwriters pull two years of tax returns, verify employment, and calculate your debt-to-income ratio. DSCR lenders order a rent schedule or appraisal, divide rent by the proposed payment, and move forward if the ratio works.
Rates vary by borrower profile and market conditions, but DSCR loans typically price 0.5-1.5% higher than conventional. You're paying for the flexibility of income-free underwriting.
Down payments differ too. Conventional loans for investment properties require 15-25% down. DSCR loans usually start at 20-25% but can go higher if your credit or DSCR ratio is marginal.
Property use matters. Conventional loans work for any occupancy type but give best pricing to owner-occupants. DSCR loans only finance rental properties—you can't live there.
Go conventional if you're buying a primary residence or your tax returns show clean W-2 income. The lower rates save real money over 30 years, and underwriting is straightforward when your income is simple.
Choose DSCR if you're acquiring a Santa Monica rental and your personal income creates underwriting problems. Self-employed borrowers with business write-offs, investors with multiple properties, or anyone who can't document traditional income—DSCR loans exist for you.
Also consider DSCR if you're scaling a portfolio fast. Conventional loans cap how many financed properties you can carry. DSCR lenders don't count existing mortgages the same way, making portfolio growth cleaner.
No. DSCR loans only finance investment properties that generate rental income. You can't occupy the property as your primary residence.
Most lenders require 1.0 or higher, meaning rent equals or exceeds the total monthly payment. Some programs go down to 0.75 with larger down payments.
Minimum scores are similar—usually 620-640 for both. But DSCR lenders price more aggressively if your score is below 700.
You'd refinance from one to the other. Most investors do this in reverse—start with DSCR, then refinance to conventional once their income supports it.
DSCR loans often close quicker because there's no income verification. Conventional loans take longer when underwriters request multiple years of tax documents.