Hard Money Loans vs DSCR Loans

Introduction: Choosing the Right Loan for Your Investment

Funding is one of the most critical steps in any real estate investment strategy. Investors often hear about hard money loans and DSCR loans, but many aren’t sure how they differ or which is right for their project.

In this guide, we’ll break down the pros, cons, and requirements for both loan types. By the end, you’ll understand which loan fits your goals, whether you’re flipping houses, holding rentals, or building a portfolio.

What Are Hard Money Loans?

Hard money loans are short-term, asset-based loans often used by fix & flip investors. Key characteristics:

• Funded primarily on property value, not the borrower’s credit or income.

• Typically 12–24 month terms, sometimes interest-only.

• Higher interest rates than conventional loans (usually 10–15%).

• Quick funding, often within days.

Hard money is ideal for rehab projects because it allows investors to purchase and renovate properties quickly without waiting for bank approval.

What Are DSCR Loans?

DSCR (Debt Service Coverage Ratio) loans are more suitable for rental or buy-and-hold properties. Key points:

• Loan is based on property cash flow, not personal income.

• DSCR = Net Operating Income ÷ Debt Service. Lenders usually require DSCR ≥ 1.2.

• Often used for residential and small multifamily properties.

• Terms are longer (5–30 years) and may be fully amortized.

DSCR loans are ideal for investors who want stable, long-term cash flow from rental properties rather than flipping.

Hard Money vs DSCR: Key Differences

When to Use Hard Money

Quick flips where speed is critical.

• Properties needing rehab before resale.

• Borrowers may lack strong credit or income verification.

• Investors need short-term capital and expect to pay off the loan quickly.

Tips for Hard Money Loans:

• Budget for interest-only payments during rehab.

• Include holding costs (insurance, taxes, utilities, reserves).

• Have a clear rehab scope of work (SOW) and realistic ARV estimate.

• Organize documents for faster approval: borrower info, property docs, and rehab plans.

Pros & Cons of Each

Hard Money Pros:

• Fast approval & funding

• Asset-based, not personal income-based

• Flexible underwriting

Hard Money Cons:

• Higher interest & fees

• Short repayment window

• Risk if rehab or sale delays

DSCR Loan Pros:

• Long-term, stable financing

• Based on cash flow, not personal credit

• Lower interest than hard money

DSCR Loan Cons:

• Longer approval & underwriting

• Requires solid property income

• Less flexible for quick flips

How to Decide Which Loan is Right for You

• Flipping a property? Hard money is usually faster and easier.

• Holding rental property? DSCR loans help maximize long-term cash flow.

• Consider experience level, project type, and risk tolerance.

• Budget for fees, reserves, and interest payments in both scenarios.

How Fuel My Deal Can Help

At Fuel My Deal, we specialize in connecting investors with the right funding for their goals:

• Hard money for rehabs and flips

• DSCR loans for buy-and-hold investors

• Quick approvals and transparent fees

• Guidance on structuring deals and prepping documentation

Have a property to fund? Submit your deal now and get matched with the right lender.