DSCR Loan vs Hard Money Loan
Hard Money Loans
Data driven hard money lending. Get your loan in under 10 minutes
Hard Money Loans
Data driven hard money lending. Get your loan in under 10 minutes
Hard Money Loans
Data driven hard money lending. Get your loan in under 10 minutes
Hard Money Loans
Data driven hard money lending. Get your loan in under 10 minutes
DSCR loans and hard money loans serve distinct purposes in real estate financing. DSCR loans are typically long-term and assess a property’s income-generating potential to determine eligibility, making them suitable for rental properties.
In contrast, hard money loans are short-term, asset-based loans that rely on the property’s value as collateral, often used for quick acquisitions and renovations in fix-and-flip projects.
Comparison Table - DSCR Loan vs Hard Money Loan
Hard Money Loans | DSCR Loans |
---|---|
Used for short-term financing (fix and flips) | Used for longer term financing (rentals) |
Minimum Interest Rate 9.5% | Minimum Interest Rate 6.125% |
Maximum Interest Rate 11.25% | Maximum Interest Rate 9.5% |
Loan Term up to 18 Months | Loan Term 30 Years |
Minimum Loan Amount $100,000 | Minimum Loan Amount $250,000 |
Maximum Loan Amount $5,000,000 | Maximum Loan Amount $3,000,000 |
Minimum FICO 650 | Miniumu FICO 660 |
Up to 75% Loan To Value | Up to 80% Loan To Value |
Secured by the property itself | Underwritten on property’s cash flow |
Higher interest rates | Lower interest rates |
Easier to qualify for | Stricter qualification criteria |
Very fast funding | Reasonably fast funding |
DSCR Loan Definition
The Debt Service Coverage Ratio (DSCR) is a key financial metric used in real estate to determine whether an investment property is able to cover debt obligations by generating sufficient rental income or revenue. In other words, the debt service coverage ratio is the ratio of cash available to service debt, which is essentially the cash flow.
As such, a Debt Service Coverage Ratio loan is based on real estate investors’ ability to repay their loan, by looking at the amount of revenue they will generate from an investment property. A DSCR loan compares the Net Operating Income (NOI) with the loan’s debt, to work out the ratio. A DSCR ratio of more than 1 means that the property will generate enough income to cover the debt, with a positive cash flow.
Hard Money Loan Definition
A hard money loan is a loan provided by private lenders (hard money lenders) or companies, typically for real estate investors. A hard money loan uses the investment property as collateral to secure the loan, instead of the borrower’s creditworthiness.
Lenders usually approve hard money loans based on the value of the property. Hard money loans are characterized by their short-term nature, higher interest rates and fast closing times, geared to fix-and-flip real estate investing.
Key Differences - DSCR Loan vs Hard Money Loan

Difference 1: Loan Purpose
Hard money loans are typically used for short-term real estate investments. These loans are known for fast closing, so they’re usually used for time-sensitive deals like fix and flip properties.
DSCR loans are focused on the income-generating capability of properties and as such, are often used for long term rental properties or commercial real estate that produces income.
Difference 2: Length of Loan Terms
Hard money loans are usually short-term loans lasting up to 18 months, primarily for house flipping. They are often used to purchase a property, rehab it and then sell it again for a profit or refinance it, so these terms are ideal for that purpose.
DSCR loans, on the other hand, have longer loan terms that will be aligned to the property’s income generation. For example, a property that produces rental income will typically be granted a DSCR loan with a 30 year fixed rate.
Difference 3: Loan Qualifications & Requirements
Hard money loans are asset based and are therefore less focused on the borrower’s financial situation and more on the qualities of the property itself. Hard money loan qualification is more flexible when it comes to the borrower’s financials.
Whereas with DSCR loans, the property’s ability to cover debt is the most important factor in loan qualification and this means its ability to generate an income is vital. DSCR loan qualification may provide more emphasis on the borrower’s financial standing, along with the property’s income generating potential.
Difference 4: Loan Collateral
When it comes to hard money loans, hard money lenders use the property as collateral to secure the loan, which means that the borrower’s credit history doesn’t have a major impact on the loan.
However, DSCR loans place more emphasis on the property’s ability to cover debts by producing an income. Collateral is required, but the Net Operating Income (NOI) plays a larger role in the final loan terms offered to the borrower. Also, the FICO score of the borrower is typically higher for a DSCR Loan than it is for a Hard Money Loan.
Key Similarities - DSCR Loan vs Hard Money Loan

Similarity 1: Streamlined Process
A DSCR loan is a lending option geared towards real estate investors who would like to borrow funds based on an investment property’s cash flow, instead of their personal finances.
Hard money loans are geared towards fast funding for real estate investing, which means that hard money lenders can provide financing in as little as a few days. This quick access to capital offers investors the chance to beat the competition and secure deals fast.
DSCR loans are also streamlined, which means that they can provide funding faster than many other types of loans. While they may not offer the same closing speeds as hard money loans, DSCR loans still give investors a faster alternative to traditional loans.
Similarity 2: Flexible Terms
Hard money loans are a popular choice among real estate investors due to the flexibility they offer on their terms. Hard money loans can be tailored to suit each investor’s particular situation.
DSCR loans also offer flexibility on their loan terms based on varying borrower financial situations. While they are based on the property’s cash flow, they can still be flexible in other criteria.
Similarity 3: High LTV
Hard money loans often cover a large amount of the property purchase and the renovations of the property. In many cases, depending on the hard money lenders, up to 90% of the property purchase amount and up to 100% of the rehab costs are covered by the loan.
DSCR loans also offer high LTV ratios for real estate investors. Often, DSCR loans cover up to 80% of the purchase price of a rental property that is being used as-is.
Who Should Use DSCR Loans?
DSCR loans are best suited to real estate investors who are purchasing rental properties and commercial real estate. DSCR loans allow investors to make real estate purchases without having to put a large amount of money down, so investors who don’t have a large down payment to contribute can benefit from this. This is because DSCR loans have a higher Loan To Value (LTV) ratio, which means that the loan covers more of the property.
DSCR loans give investors the freedom to manage the property as they see fit and make their own investment decisions, which makes these ideal for investors who wish to make their decisions autonomously. DSCR loans are also a good fit for investors who wish to leverage the rental income from their properties to improve other existing properties and expand their portfolio.
Who Should Use Hard Money Loans?
Hard money loans are geared towards investors who need access to capital fast, and this suits real estate deals like fix and flip properties. Real estate investors can purchase the property and renovate it, using the loan, then sell it and use the proceeds to pay off the loan. Given the short-term nature of hard money loans, they’re well suited to short-term projects that are time sensitive.
While they offer higher interest rates, hard money loans are usually easier to qualify for. Which means that borrowers who don’t have a stellar credit history can still qualify for these loans if they have a good real estate deal. Hard money loans are well suited to real estate investors who are looking for flexible terms, as hard money lenders may offer repayment schedules and interest rates that are more accommodating than stringent traditional loan terms.
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Additional Resources
DSCR Loan Calculator
This DSCR Calculator makes it easy to workout DSCR Ratio, and it also estimate maximum loan amount and monthly repayments.
DSCR Loan Interest Rates
Find out the latest DSCR Loan Interest Rates here. This guide explores what rate you are likely to qualify for.
DSCR Loan Requirements
First and foremost there must be a rental property to evaluate, but there are other DSCR Loan Requirements.
DSCR Loan Pros & Cons
There are advantages and disadvantages associated with DSCR Loans. This guide outlines all the DSCR Loan Pros & Cons.
Best DSCR Lenders
Simply put, some lenders are better than others. This guide reviews the Best DSCR Lenders at this moment in time.
DSCR Loan For Airbnb
It is definitely possible to get a DSCR Loan For Airbnb properties. Short term rentals qualify for DSCR Loans.
DSCR Loan vs Conventional Loan
This guide explains the key differences between a DSCR Loan vs Conventional Loan.
Short Term Rental Loans (STR Loans)
Short term rental (STR) loans are tailored to the specific needs and challenges of the short term rental market.