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in Merced, CA
Merced investors face a choice between conventional financing and DSCR loans. One relies on your W-2 income and credit. The other ignores your tax returns entirely and qualifies you on rental cash flow.
Most owner-occupants stick with conventional loans for lower rates. Real estate investors building portfolios often switch to DSCR after exhausting conventional options. The right choice depends on whether you'll live there or lease it out.
Conventional loans offer the lowest rates in Merced when you qualify. You need 620+ credit, steady W-2 income, and DTI under 50%. Put down 3% as an owner-occupant or 15-25% for investment properties.
Lenders verify two years of tax returns and employment. You're capped at 10 financed properties across your name. Rates vary by borrower profile and market conditions, but conventional almost always beats non-QM pricing by 1-2 points.
DSCR loans skip income verification entirely in Merced. The lender divides monthly rent by the mortgage payment to calculate debt service coverage ratio. You need 1.0 or higher to qualify, meaning rent covers the full payment.
Expect 20-25% down, 660+ credit, and rates 1.5-2.5% above conventional. No property count limits, no tax returns, no employment letters. This works for self-employed investors, retirees with rental income, or anyone building a portfolio past 10 doors.
Conventional checks your personal finances. DSCR checks the property's finances. A Merced duplex renting for $2,400 monthly with a $2,000 payment qualifies for DSCR even if you show zero income on tax returns. That same property requires you to prove $6,000+ monthly income for conventional.
Down payment matters less than you think. Conventional demands 15% down for non-owner investment property. DSCR wants 20-25%. The real cost difference is the rate—figure $150-250 more per month on a $400,000 loan with DSCR pricing.
Choose conventional if you're buying your first 1-4 Merced rentals and have W-2 income to verify. The rate savings compound over 30 years. Even investors with LLC income should consider conventional for their first few doors.
Switch to DSCR when conventional stops working. You're self-employed with write-offs tanking your qualifying income. You've hit the 10-property limit. You're buying properties that cash flow but don't fit agency guidelines. DSCR trades higher rates for unlimited scalability.
Yes, but you'll pay 1.5-2.5% more in interest than conventional. Save DSCR for when conventional won't work—most first-time investors qualify for better conventional rates.
Most lenders order an appraisal with rent comparables. Some accept a signed lease if you have a tenant already. The appraised rent determines your DSCR ratio.
Expect 6-12 months of property payments in reserves. More properties in your portfolio means higher reserve requirements from most DSCR lenders.
No conversion exists—you'd refinance. Most investors keep conventional loans in place and use DSCR only for new purchases once conventional maxes out.
DSCR often closes quicker—no employment verification delays. Conventional takes 30-45 days with full income documentation. Both need appraisals, which can slow Merced County timelines.