Two Investor Financing Tools, Two Different Jobs

Hard money loans and DSCR loans both serve real estate investors, but they solve different problems. Confusing them — or using the wrong one for your situation — is an expensive mistake. Here's a clear breakdown of both products and when each applies.

What Is a Hard Money Loan?

A hard money loan is a short-term, asset-based loan primarily used to acquire or rehab properties that don't yet qualify for permanent financing. Key characteristics:

• Term: 6-24 months (short-term, not permanent)
• Rate: 9-14% (sometimes higher)
• LTV: Based on after-repair value (ARV) — typically 65-75% of ARV
• Rehab funds: Often includes a construction holdback for renovation draws
• Credit requirements: Minimal — 550-580+ FICO is often acceptable
• Speed: Can close in 5-10 business days
• Purpose: Acquire distressed properties, fund renovation, bridge to permanent financing

What Is a DSCR Loan?

A DSCR loan is a long-term permanent loan for stabilized investment properties. Key characteristics:

• Term: 30 years (permanent financing)
• Rate: 7-9.5% (current market range)
• LTV: Based on current appraised value — up to 80%
• Rehab funds: Not included; property must be in rentable condition
• Credit requirements: Minimum 620-640 FICO
• Speed: 21-35 days
• Purpose: Finance or refinance stabilized rental properties long-term

Key Differences: Side by Side

• Purpose: Hard money = acquisition/rehab; DSCR = permanent hold
• Duration: Hard money = 6-24 months; DSCR = 30 years
• Rate: Hard money = 10-14%; DSCR = 7.5-9.5%
• Property condition: Hard money = distressed ok; DSCR = must be rentable
• Rental income requirement: Hard money = none; DSCR = property must have qualifying rent
• Credit: Hard money = 550+; DSCR = 620+

The Classic Sequence: Hard Money → DSCR

The most common investor pattern (BRRRR strategy):

1. Buy: Use hard money to purchase distressed property quickly
2. Rehab: Use hard money draw funds to renovate
3. Rent: Place a tenant and stabilize the property
4. Refinance: Pay off the hard money with a DSCR loan (lower rate, 30-year term)
5. Repeat: Use recovered capital for the next acquisition

When to Choose Hard Money

• Property needs significant rehab (not move-in ready)
• Need to close in less than 2 weeks
• Your credit score is below 620
• You're buying at auction or a wholesale deal with tight timeline

When to Choose DSCR

• Property is already rented or move-in ready
• You're planning a long-term hold (2+ years)
• You want a 30-year fixed rate and no balloon payment
• You want lower rates than hard money