DSCR Loan vs. Conventional Mortgage: The Colorado Investor’s Guide to Scaling

The question is inevitable for any serious investor in the Centennial, Denver, or surrounding Colorado markets: Which is better for my next rental property—a Conventional loan or a DSCR loan?

It is a mistake to think of one as universally “better.” Both are powerful tools, but they are designed for completely different investor profiles and financial goals. The Conventional loan prioritizes a lower cost, while the DSCR loan prioritizes flexibility and portfolio scalability.

As an authoritative mortgage resource for investors in Colorado, we break down the critical differences between the two, providing the clarity you need to choose the financing that best supports your wealth-building strategy.

1. Qualification: Borrower vs. Property

This is the single biggest difference and the key to scaling your portfolio.

• Conventional Investment Loan (Fannie Mae/Freddie Mac): Qualification is focused intensely on the borrower’s personal financials. Lenders require W-2s, two years of tax returns, and will strictly calculate your personal Debt-to-Income (DTI) ratio. Every new conventional mortgage payment hits your personal DTI, which severely limits how many properties you can finance. For official guidelines on conventional financing, see the resources from Fannie Mae.
• DSCR Loan (Debt Service Coverage Ratio): Qualification is focused almost entirely on the property’s cash flow. The lender uses the DSCR formula: If the rental income comfortably covers the mortgage payment (a ratio of 1.2 or higher is typically preferred), the loan is approved. Since personal income is generally not verified, the debt from a DSCR loan does not impact your personal DTI. This is how experienced investors scale rapidly.

2. Limits and Portfolio Growth

If your goal is to acquire more than a handful of properties, this section is critical.

• Conventional Investment Loan: Federal guidelines typically cap investors at 10 financed properties per borrower. As you approach this limit, qualification requirements become increasingly stringent. For up-to-date information on maximum loan amounts and conforming limits, consult the Federal Housing Finance Agency (FHFA).
• DSCR Loan: There is no industry-standard limit on the number of properties an investor can finance using DSCR loans. These products are built for growth, allowing you to continually add investment properties as long as each one meets the cash flow requirements.

3. Rate, Cost, and Flexibility

There is a clear trade-off between cost and convenience.

• Conventional Loan: Generally offers the lowest interest rate for a qualified borrower. However, the closing process is longer (30–45+ days) due to the extensive personal income and employment documentation required, and the loan must typically be closed in the investor’s personal name, limiting liability protection.
• DSCR Loan: Rates are typically 0.25% to 2.0% higher than conventional loans because they are Non-Qualified Mortgages (Non-QM) and carry a higher perceived risk for the lender. The upside is that closings are often much faster (sometimes under three weeks), and they allow the loan to be vested in an LLC or other business entity, which is key for liability and tax purposes. For a deeper understanding of investor loan products outside of conventional standards, the CFPB offers helpful resources.

The Colorado Investor’s Summary

Goal is…	Choose…	Why?
Lowest Long-Term Cost	Conventional Loan	Lower rates and fees for properties 1–4. Requires W-2s/tax returns.
Scaling Beyond 10 Doors	DSCR Loan	No portfolio limit; the debt doesn’t impact your DTI.
Speed and LLC Vesting	DSCR Loan	Faster closings and the ability to close in an LLC for liability protection.
Complex/Self-Employed Income	DSCR Loan	Qualifies on property rent, not personal tax returns with significant write-offs.

The financing you choose directly determines the speed and scale of your wealth creation. If you are serious about building a large, passive income stream in the Colorado market, understanding and strategically using DSCR loans is essential.

Ready to Build Your Colorado Investment Empire?

Don’t let rigid financing guidelines dictate the size of your portfolio. Whether you’re optimizing for the lowest rate or aiming for limitless growth, the right loan structure can make all the difference in the competitive Centennial, Lone Tree, and Denver markets.

Contact Choice Mortgage Group today to discuss your next property. We are dedicated to being your go-to resource, providing the education and strategy you need to succeed in Colorado real estate.

Email: rbaxter@choicemortgage.com

Phone: (303) 670-0137

For more resources on mortgages and real estate investing in Colorado, visit our blog page at www.cohomesandloans.com/blog