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in Stockton, CA
Stockton investors have two main paths when traditional W-2 income won't cut it. DSCR loans underwrite to the property's rental income, while hard money loans care mostly about the asset value and your exit plan.
Most brokers push one or the other without asking what you're actually trying to do. The right choice depends on whether you're buying for cash flow or planning a quick flip.
DSCR loans let you qualify using the property's rental income instead of tax returns or W-2s. Lenders calculate the debt service coverage ratio—monthly rent divided by monthly mortgage payment—and approve based on that number.
These are long-term loans with 30-year amortization, typically requiring 20-25% down. Rates run higher than conventional loans but lower than hard money, usually 1-3 points above conforming rates.
You can close in 3-4 weeks with 12-24 months of bank statements for reserves. No income verification, no DTI calculation, no explaining why you have five other mortgages already.
Hard money loans are short-term financing backed by the property itself. Lenders care about after-repair value and your exit strategy, not credit scores or income documentation.
Terms run 6-24 months with interest-only payments and a balloon due at the end. Expect 8-12% rates plus 2-4 points upfront, with loan-to-value capped at 65-75% of purchase price or ARV.
You can close in 7-14 days with minimal documentation. These work for fix-and-flip projects, bridge financing, or properties that won't qualify for traditional loans yet.
Timeline separates these two more than anything else. Hard money gets you in the door fast for properties that need work, while DSCR loans give you permanent financing for rentals that are already generating income.
Cost structure looks completely different. DSCR loans have lower rates but require more documentation and reserves. Hard money charges higher rates and points but will fund deals DSCR lenders won't touch.
Stockton's investor market sees both loan types regularly. Use hard money for properties under $300K that need significant rehab, then refinance into DSCR once the property is rent-ready and stabilized.
Go with DSCR if you're buying a turnkey rental or a property that needs only minor cosmetic work. The lower rate saves thousands monthly, and the 30-year term gives you stable financing you won't need to replace.
Choose hard money when you're flipping, the property needs major rehab, or you need to close in under two weeks. The higher cost makes sense when speed or property condition rule out everything else.
Many Stockton investors use both strategically. Hard money funds the acquisition and renovation, then DSCR refinances the completed project. That sequence maximizes leverage and minimizes total interest paid.
Yes, most investors do exactly that after completing rehab. The property needs six months of rental history and a DSCR above 1.0 to qualify.
DSCR loans have much lower payments because of the 30-year amortization and lower rates. Hard money is interest-only with a balloon payment.
No, hard money qualifies on property value and exit strategy. Current income doesn't matter since these are short-term bridge loans.
Not practical because DSCR requires rental income to qualify. These loans are designed for buy-and-hold investors, not flippers.
Hard money closes in 7-14 days versus 3-4 weeks for DSCR. Speed costs more but sometimes that's what the deal requires.