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in Hillsborough, CA
Real estate investors in Hillsborough have two powerful financing options beyond traditional mortgages. DSCR loans and hard money loans both cater to investors, but they serve very different purposes and timelines.
Understanding the differences between these loan types helps you match the right financing to your investment strategy. Whether you're buying a rental property or renovating a fixer-upper, choosing the correct loan can save you thousands and accelerate your project timeline.
DSCR loans qualify you based on your rental property's income potential rather than your personal W-2 income. The lender calculates the property's monthly rent divided by the monthly mortgage payment to determine if the property can support itself.
These loans typically offer 30-year terms with rates similar to conventional mortgages. You'll need a minimum DSCR of 1.0 or higher, meaning the rent must at least cover the mortgage payment, though many lenders prefer 1.25 or above.
DSCR loans work well for established rental properties with existing tenants or properties that can generate strong rental income immediately. They're a long-term solution for building a rental portfolio in San Mateo County.
Hard money loans are short-term, asset-based loans that focus on the property's value rather than your financial profile. Lenders approve based on the property's current or after-repair value, making these loans perfect for fix-and-flip projects.
These loans typically last 6 to 24 months with higher interest rates than traditional financing. Approval happens quickly—often within days—allowing investors to move fast on time-sensitive deals in competitive markets like Hillsborough.
Hard money loans shine when you need speed or the property doesn't qualify for traditional financing due to condition issues. They're the go-to solution for renovations, quick purchases at auction, or properties that need significant repairs before they can generate rental income.
The most significant difference lies in the loan term and purpose. DSCR loans are long-term financing for properties that already generate or will immediately generate rental income. Hard money loans are short-term bridge financing for properties that need work before they can be rented or sold.
Cost structures differ dramatically. DSCR loans offer competitive interest rates but require the property to cash flow. Hard money loans come with higher rates and points, but provide speed and flexibility when properties don't meet traditional lending standards.
Qualification focuses on different factors. DSCR lenders evaluate the property's rental income potential and your experience as an investor. Hard money lenders primarily care about the property's value and your exit strategy—how you'll repay the loan when it matures.
Choose a DSCR loan when you're purchasing a turnkey rental property or one that needs minimal work to rent. This option makes sense if you plan to hold the property long-term and the rental income can support the mortgage payment from day one.
Hard money loans fit when you're buying a property that needs significant renovation, purchasing at auction, or need to close extremely fast. They're also the right choice when the property's current condition prevents it from qualifying for traditional financing.
Many Hillsborough investors use both loan types strategically. They might start with hard money to purchase and renovate a property, then refinance into a DSCR loan once the property is rent-ready. This approach combines the speed of hard money with the long-term affordability of DSCR financing.
DSCR loans require the property to generate rental income immediately. For properties needing significant work, start with hard money financing, complete renovations, then refinance to a DSCR loan once the property is rent-ready.
Hard money loans can close in as little as 5-7 days. DSCR loans typically take 3-4 weeks but still close faster than conventional mortgages since they don't require extensive income documentation.
DSCR loans generally require minimum credit scores of 620-680. Hard money lenders are more flexible with credit since they focus primarily on the property's value and your exit strategy.
Yes, hard money loans typically have higher interest rates due to their short-term nature and higher risk. Rates vary by borrower profile and market conditions, but expect to pay a premium for speed and flexibility.
You can't convert directly, but you can refinance. Once your renovation is complete and the property generates rental income, you can apply for a DSCR loan to pay off the hard money loan.