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in Folsom, CA
Real estate investors in Folsom often choose between DSCR loans and hard money loans for their projects. Both options serve different purposes and work best in specific situations.
DSCR loans focus on rental income potential for long-term holds. Hard money loans prioritize speed and flexibility for short-term projects. Understanding these differences helps you match the right financing to your investment strategy.
DSCR loans qualify you based on a property's rental income rather than your W-2 earnings. The lender calculates the Debt Service Coverage Ratio by dividing monthly rental income by the monthly mortgage payment.
These loans typically require a DSCR of 1.0 or higher, meaning rent covers the mortgage payment. Sacramento County investors use DSCR loans for buy-and-hold rental properties when they want traditional loan terms without traditional income documentation.
Expect 20-25% down payments and interest rates slightly higher than conventional loans. Rates vary by borrower profile and market conditions. Closing takes 30-45 days, similar to traditional mortgages.
Hard money loans are short-term, asset-based financing backed by the property itself. Lenders focus on the property's current or after-repair value rather than your income or credit score.
These loans close quickly—often in 7-14 days—making them ideal for competitive Folsom markets or time-sensitive opportunities. Investors use hard money for fix-and-flip projects, property acquisitions at auction, or bridge financing.
Terms typically run 6-24 months with higher interest rates and origination fees than DSCR loans. Down payments range from 10-30% depending on the deal. The speed and flexibility come at a premium cost.
Local decision guide
Use this comparison to weigh DSCR Loans and Hard Money Loans through local payment fit, eligibility, documentation, and timing before choosing a path in Folsom.
Real estate investors in Folsom often choose between DSCR loans and hard money loans for their projects. Both options serve different purposes and work best in specific situations.
DSCR loans focus on rental income potential for long-term holds. Hard money loans prioritize speed and flexibility for short-term projects. Understanding these differences helps you match the right financing to your investment strategy.
DSCR loans qualify you based on a property's rental income rather than your W-2 earnings. The lender calculates the Debt Service Coverage Ratio by dividing monthly rental income by the monthly mortgage payment.
Timeline separates these options dramatically. DSCR loans take 30-45 days to close while hard money can fund in under two weeks. This speed difference matters when you're competing for properties or facing deadline pressures.
Cost structures differ significantly. DSCR loans offer lower rates for longer terms, typically 15-30 years. Hard money carries higher rates and fees but only for 6-24 months. Your total interest paid depends on how long you'll hold the property.
Purpose drives the choice. Use DSCR for rental properties you plan to keep and refinance later. Choose hard money for renovations, quick flips, or situations requiring immediate capital. Sacramento County investors often use hard money first, then refinance into DSCR loans.
Qualification criteria take different approaches. DSCR lenders analyze rental income potential and your credit profile. Hard money lenders focus on the property's value and your exit strategy. Both skip traditional income verification.
Choose DSCR loans when you're buying rental property in Folsom to hold long-term. The property should generate enough rent to cover the mortgage payment. You want lower rates and traditional loan terms without proving personal income.
Select hard money when speed matters more than cost. You need fast closing for a competitive bid or auction purchase. Your plan involves renovation and resale within 6-24 months. The property's value and your renovation budget justify higher short-term costs.
Many Sacramento County investors use both strategically. They acquire and renovate with hard money, then refinance into a DSCR loan once the property is rent-ready. This approach combines the speed of hard money with the long-term affordability of DSCR financing.
Your choice depends on timeline, exit strategy, and total project costs. Calculate whether paying higher rates short-term saves money versus waiting longer for lower-cost DSCR financing. Consider your liquidity needs and backup plans if the project takes longer than expected.
Yes, this is a common strategy. Complete your renovation with hard money, then refinance into a DSCR loan once the property is stabilized and generating rental income. This gives you long-term, lower-cost financing.
DSCR loans typically require minimum credit scores of 620-660. Hard money lenders focus more on the property and may accept lower scores. Both are more flexible than conventional financing.
Rates vary by borrower profile and market conditions. DSCR rates typically run 1-2% above conventional loans. Hard money rates range 9-15% with 2-5 point origination fees. Higher costs reflect increased risk and speed.
DSCR loans typically require 20-25% down for investment properties. Hard money ranges from 10-30% depending on the project, property condition, and your experience level as an investor.
DSCR loans suit first-timers buying turnkey rentals with simpler processes and lower costs. Hard money requires more experience to manage tight timelines and renovation budgets. Start with DSCR unless you have construction expertise.