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in San Diego, CA
San Diego's diverse real estate market presents unique opportunities for both homebuyers and investors. Conventional loans serve primary residences and traditional purchases, while DSCR loans target real estate investors who buy rental properties.
The fundamental difference lies in how lenders evaluate your ability to repay. Conventional loans focus on your personal income and credit history. DSCR loans qualify you based on the rental income the property generates, not your W-2 or tax returns.
Choosing between these options depends on whether you're buying a home to live in or acquiring an investment property. Your financial profile and property goals determine which path makes sense for your San Diego real estate purchase.
Conventional loans represent the most common financing method for primary residences and second homes in San Diego. These mortgages aren't backed by government agencies, which allows lenders to offer flexible terms and competitive rates for borrowers with strong credit.
You'll qualify based on your debt-to-income ratio, credit score, employment history, and personal financial strength. Lenders typically require scores of 620 or higher, though better rates come with scores above 740. Down payments range from 3% to 20%, depending on your profile.
These loans work well for San Diego homebuyers who have stable employment and documented income. They offer the lowest rates for well-qualified borrowers and can finance properties up to high conforming limits suitable for the local market.
DSCR loans evaluate investment properties based on their rental income potential rather than your personal finances. The Debt Service Coverage Ratio compares monthly rental income to the property's monthly debt obligations, including mortgage, taxes, and insurance.
These loans don't require W-2s, pay stubs, or tax returns. Instead, lenders use an appraisal with a rent schedule or existing lease agreements to determine the property's income. A DSCR above 1.0 means the property generates enough rent to cover all expenses.
San Diego real estate investors use DSCR loans to build portfolios without maxing out their personal debt-to-income ratios. They're ideal for self-employed borrowers, those with complex tax situations, or investors buying multiple properties. Rates vary by borrower profile and market conditions.
The qualification process separates these loan types completely. Conventional lenders scrutinize your personal income, employment, and debt levels. DSCR lenders care only whether the rental property generates enough income to cover its expenses, making your personal finances largely irrelevant.
Rates and costs differ significantly. Conventional loans offer lower rates for owner-occupied properties but restrict how many you can have simultaneously. DSCR loans carry higher rates but allow unlimited investment properties and don't count against your personal debt ratios.
Property requirements also vary. Conventional loans work for primary homes, second homes, and some investment properties with occupancy restrictions. DSCR loans exclusively finance non-owner-occupied rental properties, making them unsuitable for homes you plan to live in.
Down payment expectations shift too. Conventional loans can start at 3% down for primary residences. DSCR loans typically require 20-25% down minimum, reflecting the investment-focused nature and higher risk profile of rental properties.
Choose a conventional loan if you're buying a primary residence in San Diego, have documented income, and want the lowest possible rate. These loans excel for traditional homebuyers with W-2 income, strong credit, and straightforward financial situations.
Select a DSCR loan if you're building a rental property portfolio, have complicated tax returns, or want to buy without income verification. San Diego investors who've already maxed out their conventional loan allowances often switch to DSCR financing to continue growing their holdings.
Your occupation matters too. Self-employed borrowers and business owners who write off significant expenses may show insufficient income for conventional loans despite strong cash flow. DSCR loans solve this problem by ignoring personal income entirely and focusing on property performance.
Many San Diego real estate investors use both loan types strategically. They secure conventional financing for their first few investment properties to get better rates, then transition to DSCR loans once they hit conventional lending limits or want to scale faster.
No, DSCR loans only finance non-owner-occupied investment properties. You must rent the property to tenants. For primary residences or second homes, use conventional financing instead.
Conventional loans typically offer lower rates for owner-occupied properties. DSCR loans carry higher rates due to their investment focus and reduced documentation requirements. Rates vary by borrower profile and market conditions.
Conventional loans limit you to 10 financed properties total. DSCR loans have no portfolio limits, allowing unlimited investment property purchases as long as each property qualifies based on its rental income.
Conventional loans typically require 620+ credit scores, with better rates at 740+. DSCR loans often accept scores as low as 660-680, though higher scores still secure better terms.
You'd need to refinance into a conventional loan if you want to move into a property financed with a DSCR loan. DSCR loans require the property remain a rental throughout the loan term.