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in Rancho Cordova, CA
Real estate investors in Rancho Cordova have multiple financing paths beyond traditional mortgages. DSCR loans and hard money loans both serve investor needs, but in fundamentally different ways.
Understanding the distinctions between these two options helps you match your financing to your investment timeline and property goals. Each loan type serves specific scenarios in Sacramento County's rental and fix-and-flip markets.
DSCR loans qualify investors based on a property's rental income rather than personal W-2 income or tax returns. Lenders calculate the debt service coverage ratio by dividing monthly rental income by the monthly mortgage payment.
These loans typically feature 30-year terms with rates comparable to conventional mortgages, though usually 1-2% higher. They work well for buy-and-hold investors acquiring performing rental properties in Rancho Cordova.
Most DSCR programs require 20-25% down and accept DSCR ratios as low as 0.75 in some cases. The property itself must generate sufficient rental income to support the mortgage, making location and rent potential crucial factors.
Hard money loans are short-term, asset-based financing tools that real estate investors use for quick acquisitions and renovation projects. Lenders focus primarily on the property's current and after-repair value rather than borrower income or credit.
These loans typically last 6-24 months with interest-only payments and rates ranging from 8-15%. Hard money excels when speed matters or when properties need significant work before qualifying for traditional financing.
Lenders generally advance 65-75% of purchase price or current value, leaving room for renovation costs. The exit strategy matters greatly—most borrowers refinance into permanent financing or sell the property before the loan matures.
The timeline separates these products most clearly. DSCR loans provide 30-year permanent financing, while hard money loans are temporary bridges lasting under two years. This fundamental difference shapes everything from rates to strategy.
Cost structures diverge significantly. DSCR loans carry rates typically 1-2% above conventional mortgages with standard closing costs. Hard money loans charge 8-15% interest plus 2-5 points upfront, reflecting their short-term nature and speed.
Property condition requirements differ substantially. DSCR lenders need rent-ready properties that meet traditional appraisal standards. Hard money lenders finance distressed properties based on future value, making them essential for renovation projects in Rancho Cordova.
Choose DSCR financing when acquiring performing rental properties you plan to hold long-term. This option works for turnkey rentals or properties requiring only minor cosmetic updates before generating rental income that supports the mortgage.
Hard money suits fix-and-flip scenarios, major renovations, or time-sensitive acquisitions where traditional financing won't close fast enough. If your Rancho Cordova property needs substantial work or you're competing against cash offers, hard money provides the speed and flexibility required.
Many Sacramento County investors use both strategically—hard money to acquire and renovate, then DSCR financing to refinance and hold as a long-term rental. This two-step approach maximizes flexibility while minimizing long-term carrying costs.
DSCR loans require properties in rentable condition that meet appraisal standards. For properties needing significant work, start with hard money financing, complete renovations, then refinance into a DSCR loan for long-term holding.
Hard money loans typically qualify more easily since they focus almost entirely on property value and exit strategy. DSCR loans require the property to generate sufficient rental income, though they don't verify personal income.
DSCR loans generally require 620-660 minimum credit scores. Hard money lenders may accept lower scores or focus less on credit entirely, though better credit often improves terms and rates.
Hard money loans can close in 5-10 days when needed. DSCR loans typically take 30-45 days, similar to conventional mortgages, due to appraisal and underwriting requirements.
Most DSCR programs require 20-25% down payment. Hard money loans also typically advance 65-75% of value, meaning you'll need 25-35% down or in equity for renovation costs.