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in Galt, CA
Galt investors face a key decision when financing rental properties: conventional loans or DSCR loans. Each option serves different borrower profiles and investment strategies in Sacramento County's rental market.
Conventional loans use your personal income and credit to qualify. DSCR loans focus on the rental property's cash flow instead. Understanding these differences helps you choose the financing that matches your investment goals.
Conventional loans follow standard mortgage guidelines set by Fannie Mae and Freddie Mac. Lenders review your income, employment history, credit score, and debt-to-income ratio to determine approval.
These loans typically offer the lowest rates available to qualified borrowers. You'll need strong credit (usually 620+), verifiable income documentation, and sufficient reserves. Investment property conventional loans generally require 15-25% down payment.
Conventional financing works best for W-2 employees with steady income and clean tax returns. You can finance up to 10 properties with conventional loans, making them viable for growing rental portfolios.
DSCR loans qualify you based on rental income, not your personal earnings. Lenders calculate the debt service coverage ratio by dividing monthly rental income by the property's monthly debt obligations.
A DSCR of 1.0 or higher means the rent covers the mortgage payment. Many lenders accept ratios as low as 0.75, where you supplement the shortfall. You won't need tax returns, pay stubs, or employment verification for approval.
These non-QM loans require 20-25% down and serve self-employed investors, business owners, or anyone who prefers privacy. DSCR loans have no limit on the number of financed properties, perfect for serious real estate investors building larger portfolios.
The qualification process separates these loan types most dramatically. Conventional loans scrutinize your personal finances thoroughly. DSCR loans care only about property performance and your credit score.
Rates vary by borrower profile and market conditions, but DSCR loans typically carry slightly higher interest rates than conventional options. This rate difference reflects the flexible qualification and non-QM nature of DSCR financing.
Conventional loans cap at 10 financed properties, limiting portfolio growth. DSCR loans impose no such restriction, allowing unlimited property acquisitions. Documentation requirements also differ significantly—conventional demands extensive paperwork while DSCR streamlines the process.
Choose conventional loans if you have W-2 income, strong credit, and clean tax returns showing solid earnings. The lower rates save thousands over the loan term, especially for your first few Galt investment properties.
DSCR loans suit self-employed investors, those with complex tax situations, or buyers focused on rapid portfolio expansion. If you own multiple businesses, take substantial write-offs, or value privacy, DSCR financing offers the flexibility you need.
Many successful Galt investors use both loan types strategically. Start with conventional loans for better rates on initial properties. Switch to DSCR as you scale beyond 10 properties or when documentation becomes challenging.
DSCR loans typically require a 620+ credit score, similar to conventional loans. The rental income matters most, but you still need acceptable credit to qualify.
DSCR loans often close faster due to simplified documentation. Without income verification, the underwriting process eliminates several time-consuming steps.
Conventional loans have strict owner-occupancy and rental term requirements. DSCR loans offer more flexibility for various rental strategies, including short-term rentals.
Conventional investment loans need 15-25% down. DSCR loans typically require 20-25% down, so the difference is minimal for most investors.
Yes, you can refinance from conventional to DSCR loans. Investors often do this when expanding beyond 10 properties or when income documentation becomes burdensome.