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in Sacramento, CA
Sacramento's growing rental market and fix-and-flip opportunities attract investors who need financing beyond traditional mortgages. DSCR loans and hard money loans both serve real estate investors, but they work differently and suit distinct investment strategies.
DSCR loans qualify you based on a property's rental income potential, while hard money loans focus on the asset's value for quick financing. Understanding which option matches your timeline, project type, and financial goals can save you thousands and set your investment up for success.
DSCR loans qualify investors based on the Debt Service Coverage Ratio—comparing a property's rental income to its mortgage payment. You don't need to show W-2s or tax returns, making them ideal for self-employed investors or those with complex tax situations.
These loans typically feature 30-year terms with fixed or adjustable rates. You'll need a DSCR of at least 1.0 (rental income equals debt payment), though many lenders prefer 1.25 or higher. Down payments usually start at 20-25%.
DSCR loans work well for buy-and-hold investors in Sacramento's rental neighborhoods. They offer predictable monthly payments and allow you to scale your portfolio without personal income verification limits.
Hard money loans provide fast, asset-based financing secured by the property's current or after-repair value. Lenders focus on the deal itself rather than your credit score or income, making approval quick—often within days.
These short-term loans typically last 6-24 months with interest-only payments. Rates are higher than conventional financing, and you'll pay points upfront. Down payments range from 10-30% depending on the project and your experience.
Hard money excels for fix-and-flip projects, bridge financing, or time-sensitive purchases in Sacramento. The speed and flexibility come at a cost, but they enable deals that traditional financing would miss.
The timeline difference is stark. DSCR loans close in 3-4 weeks, while hard money can fund in under a week. DSCR loans offer long-term stability with lower rates, but hard money provides unmatched speed and flexibility for short-term projects.
Qualification criteria diverge completely. DSCR lenders analyze rental income and property cash flow, requiring proof of sustainable returns. Hard money lenders care primarily about equity in the deal and exit strategy, making them more lenient on borrower qualifications.
Cost structures tell different stories. DSCR loans have lower interest rates and standard closing costs, while hard money charges higher rates plus 2-5 points upfront. Your total financing cost depends on how long you hold the property.
Choose DSCR loans if you're buying rental properties to hold long-term in Sacramento. They make sense when you want stable financing, lower monthly payments, and plan to collect rent for years. Self-employed investors who can't verify traditional income benefit most.
Choose hard money if you're flipping properties, need bridge financing, or found a time-sensitive deal. When speed matters more than cost, or when traditional lenders won't approve your project, hard money opens doors. The higher expense pays for flexibility and quick execution.
Many Sacramento investors use both strategically. Start with hard money to acquire and renovate a property, then refinance into a DSCR loan once it's rented and cash-flowing. This approach combines the speed of hard money with the long-term economics of DSCR financing.
DSCR loans work for rental properties, not flips. They require rental income to qualify, making them unsuitable for properties you plan to renovate and resell quickly. Hard money suits fix-and-flip strategies better.
Hard money rates run several points higher, plus you'll pay 2-5 points upfront. However, you only pay for the short time you hold the loan. DSCR has lower rates but makes sense only for longer holds.
DSCR lenders typically want credit scores above 640. Hard money cares less about credit, focusing on the property's value and your equity in the deal instead.
Yes, many investors do exactly this. Complete your renovation, get the property rented, then refinance to a DSCR loan for long-term financing with better terms.
Hard money is typically easier since it's asset-based. DSCR requires the property to generate enough rental income to cover its own debt, which not every property can demonstrate.