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in Modesto, CA
Modesto investors face a choice: conventional loans with strict W-2 requirements or DSCR loans that ignore personal income entirely. The right answer depends on whether you're buying your first rental or building a portfolio.
Conventional loans demand tax returns and debt-to-income ratios under 50%. DSCR loans look only at rent versus mortgage payment. One path favors stable earners. The other rewards property performance.
Conventional investment loans require 15-25% down and full income documentation. You'll prove employment, show tax returns, and keep debt-to-income below 45-50%. Rates start lower than non-QM options.
Fannie and Freddie impose a 10-property limit on financed homes. Once you hit that cap, conventional lending stops. Strong credit borrowers with W-2 income pay less upfront but face portfolio constraints.
DSCR loans ignore your tax returns and job history. Lenders calculate rent divided by the mortgage payment. A ratio above 1.0 means the property pays for itself. Ratios below 1.0 still qualify with higher down payments.
Portfolio investors use DSCR to scale past 10 properties. Expect 20-25% down and rates 0.5-1.5% higher than conventional. No property limit exists. You can finance dozens of rentals if each one cash flows.
Local decision guide
Use this comparison to weigh Conventional Loans and DSCR Loans through local payment fit, eligibility, documentation, and timing before choosing a path in Modesto.
Modesto investors face a choice: conventional loans with strict W-2 requirements or DSCR loans that ignore personal income entirely. The right answer depends on whether you're buying your first rental or building a portfolio.
Conventional loans demand tax returns and debt-to-income ratios under 50%. DSCR loans look only at rent versus mortgage payment. One path favors stable earners. The other rewards property performance.
Conventional investment loans require 15-25% down and full income documentation. You'll prove employment, show tax returns, and keep debt-to-income below 45-50%. Rates start lower than non-QM options.
Conventional loans price better but cap at 10 financed properties. DSCR costs more per loan but scales infinitely. One evaluates your paycheck. The other evaluates the property's rent roll.
Conventional requires 620+ credit and stable employment. DSCR accepts self-employed borrowers, retirees, and anyone with rental income. Rate differences narrow as Fed policy shifts, but DSCR always carries a premium for flexibility.
Choose conventional for your first 1-4 rentals if you have W-2 income and clean tax returns. The rate savings compound over 30 years. Switch to DSCR once you exhaust Fannie/Freddie eligibility or need faster closings.
Self-employed buyers and portfolio investors start with DSCR immediately. You skip income verification and build without artificial caps. Modesto's rental market supports both strategies, but scaling requires DSCR financing.
Yes. Finance 10 properties conventionally, then switch to DSCR for property 11 and beyond. Many investors layer strategies to optimize rates and scale.
A 1.0 ratio qualifies with 20% down. Lower ratios work with 25-30% down. Lenders want proof the rent covers the mortgage.
No. DSCR lenders skip tax returns entirely. They verify rent with a lease or appraisal and calculate the coverage ratio.
Conventional loans meet Fannie/Freddie standards and sell easily. DSCR loans carry more risk for lenders, so they charge higher rates.
Yes, if you're under 10 financed properties and can document income. Refinancing from DSCR to conventional lowers your rate if you qualify.