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in Cotati, CA
Cotati investors face a clear choice: conventional financing tied to your W-2 income, or DSCR loans based purely on rental cash flow. The right answer depends on whether you're buying a primary residence or building a rental portfolio.
Conventional loans offer lower rates and longer terms if you qualify with traditional income. DSCR loans ignore your tax returns entirely and focus on what the property earns. Most Sonoma County investors use both depending on the deal.
Conventional loans require documented income, decent credit (typically 620+), and debt-to-income ratios under 50%. You get the best rates in the market and can finance primary homes, second homes, or investment properties up to ten financed properties total.
The trade-off is strict income verification. Lenders want two years of tax returns, W-2s, and pay stubs. If you're self-employed with write-offs or own multiple rentals that show paper losses, your qualifying income shrinks fast.
DSCR loans qualify you based on one number: the property's monthly rent divided by its monthly debt payment. If that ratio hits 1.0 or higher, the property carries itself and you're approved. Your personal income never enters the equation.
These are Non-QM loans with higher rates (currently 7.5-9%) and require 20-25% down minimum. But if you're a real estate investor with complex tax returns or multiple properties, DSCR loans let you scale without income limitations. Rates vary by borrower profile and market conditions.
The rate gap is real. Conventional loans run 1-2 percentage points lower, which adds up over 30 years. On a $500K Cotati rental, that's roughly $300-400 more per month with DSCR. But conventional loans cap you at 10 financed properties and require provable income.
DSCR loans cost more but remove income barriers entirely. You can own 15, 20, or 50 rentals without hitting a wall. For active investors in Sonoma County's tight rental market, that flexibility justifies the rate premium. W-2 earners buying their first rental usually stick with conventional.
Use conventional financing if you're a W-2 earner with clean tax returns buying your first few rentals. The rate savings compound over time and qualification is straightforward. Most Cotati buyers with stable employment choose this path for properties one through four.
Switch to DSCR once your portfolio grows or your income gets complicated. If you're self-employed, own multiple LLCs, or already have several mortgages, DSCR loans keep you moving. The extra rate cost is the price of avoiding income documentation headaches.
No. DSCR loans only finance investment properties that generate rental income. For primary residences or second homes, you need conventional or government-backed financing.
Most lenders require 1.0 or higher, meaning rent covers the mortgage payment. Some allow 0.75 ratios with larger down payments and higher rates.
Yes. Expect to show 6-12 months of mortgage payments in liquid reserves per property. This proves you can handle vacancies without relying on rental income alone.
Absolutely. Many Cotati investors refinance based on current needs—switching to DSCR when scaling up or back to conventional when rates drop significantly.
DSCR loans often close quicker because there's no income verification. Conventional loans take longer due to employment and tax document review requirements.