# Hard Money Loan vs DSCR Loan: Which One Do You Need?



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## Hard Money Loan vs DSCR Loan: Which One Do You Need?

Hard money and DSCR loans serve different purposes. Here's how to know which one fits your deal and when investors use both.

Hard money and DSCR loans serve different purposes. Here is how to know which one fits your deal and when investors use both.

What is the main difference between a hard money loan and a DSCR loan?

The main difference is time horizon and purpose. A hard money loan (also called a bridge loan) is short-term financing, typically 6 to 18 months, designed for property acquisition and renovation. You use it to buy, fix, and either sell or refinance. A DSCR loan is long-term financing, typically 5 to 30 years, designed for holding stabilized rental properties. Hard money loans are underwritten primarily on the deal and property value, while DSCR loans are underwritten on the property's rental income relative to the mortgage payment. Hard money rates are higher (9-13%) because of the short term and higher risk, while DSCR rates are lower (5.5-10%) because of the longer term and stable cash flow.

## Which loan is better for buy-and-hold rental properties?

For buy-and-hold rental properties, a DSCR loan is almost always the better choice. DSCR loans offer long-term fixed rates (5 to 30 years), fully amortizing payments that build equity, and qualification based on the property's rental income rather than your personal income. If the property is already in rentable condition with a tenant or can be leased immediately, a DSCR loan provides stable, affordable financing for the long term. The only situation where a hard money loan makes sense for a buy-and-hold is if the property needs significant renovation before it can be rented, in which case you would use a hard money loan for the rehab phase and then refinance into a DSCR loan once the property is stabilized.

## Can you refinance a hard money loan into a DSCR loan?

Yes, and this is one of the most common strategies in real estate investing. It is the foundation of the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy. You use a hard money loan to acquire and renovate a property, then once the property is stabilized with a tenant and producing rental income, you refinance into a DSCR loan for the long-term hold. The DSCR refinance pays off the hard money loan and ideally returns some or all of your invested capital. Most lenders require a minimum seasoning period of 3 to 6 months between the bridge loan closing and the DSCR refinance, and the property must be in rent-ready condition with a lease in place or market rent appraisal.

What are the rate differences between hard money and DSCR loans?

Hard money loans typically carry interest rates between 9% and 13%, while DSCR loans range from approximately 5.5% to 10%. The rate difference reflects the risk profile and term length of each product. Hard money loans are short-term, higher-risk products where the lender's capital is deployed in properties that may need significant work. DSCR loans are long-term products secured by stabilized, income-producing properties with predictable cash flow. Despite the higher rate, the total interest cost on a hard money loan is often lower than a DSCR loan because you are only paying interest for 6 to 12 months versus 5 to 30 years. Always compare total cost of capital, not just the rate.

## Hard Money vs DSCR Loan

s rental income rather than your personal income. If the property is already in rentable condition with a tenant or can be leased immediately, a DSCR loan provides stable, affordable financing for the long term. The only situation where a hard money loan makes sense for a buy-and-hold is if the property needs significant renovation before it can be rented, in which case you would use a hard money loan for the rehab phase and then refinance into a DSCR loan once the property is stabilized.", }, }, { "@type": "Question", name: "Can you refinance a hard money loan into a DSCR loan?", acceptedAnswer: { "@type": "Answer", text: "Yes, and this is one of the most common strategies in real estate investing. It is the foundation of the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy. You use a hard money loan to acquire and renovate a property, then once the property is stabilized with a tenant and producing rental income, you refinance into a DSCR loan for the long-term hold. The DSCR refinance pays off the hard money loan and ideally returns some or all of your invested capital. Most lenders require a minimum seasoning period of 3 to 6 months between the bridge loan closing and the DSCR refinance, and the property must be in rent-ready condition with a lease in place or market rent appraisal.", }, }, { "@type": "Question", name: "What are the rate differences between hard money and DSCR loans?", acceptedAnswer: { "@type": "Answer", text: "Hard money loans typically carry interest rates between 9% and 13%, while DSCR loans range from approximately 5.5% to 10%. The rate difference reflects the risk profile and term length of each product. Hard money loans are short-term, higher-risk products where the lender