DSCR Loans vs. Second Home (“10% Down”) Loans for STRs
Been seeing some questions on this subject recently so wanted to share this breakdown - strictly educational comparison (apologize ahead of time if this isn't under the community rules but I think it should be ok!)
| Feature / Factor | DSCR Loans | Second Home (“10% Down”) Loans |
|---|---|---|
| Purpose & Intended Use | Strictly business-purpose loans for income-producing investment properties. Owner occupancy prohibited. | Intended for dual-use, personal use with occasional rental income. Must be “primarily” a second home for the borrower’s personal enjoyment. |
| Rental Day Limits | No restrictions on the number of rental days per year. | Typically limited to ≤ 180 days per year rented out (must be majority owner-occupied). Exceeding this can violate loan terms. |
| Property Management Rules | Can use third-party or professional property managers, co-hosts, or management companies. | Must be self-managed by the borrower. Third-party property management not permitted under Fannie Mae/Freddie Mac second-home policy. |
| Eligible Property Types | 1–4 unit residential properties (SFRs, duplexes, triplexes, fourplexes) typically always allowed for STR usage by DSCR Lenders. | Single-family homes only. 2–4 unit properties ineligible. |
| Ownership Structure | Borrower may take title in an LLC, corporation, or trust that can include multiple owners. Loan made to the entity (with personal guarantee) and typically will not show up on individual owner’s credit. | Must be in the borrower’s personal name. LLC or entity vesting not allowed. Almost impossible to split ownership (outside of married spouses) and debt is reported to personal credit. |
| Down Payment / Leverage | Commonly 20–25% down (75.0–80.0% LTV), sometimes higher for STRs. | Minimum 10% down (90% LTV) allowed, but requires Private Mortgage Insurance (PMI) until ≤ 80.0% LTV. |
| Private Mortgage Insurance (PMI) | Not required. | Required when LTV > 80.0%; adds roughly 0.3% – 1.0% annual cost (≈ $100–$250 per $400k loan per month). |
| Geographic Restrictions | None beyond lender state eligibility and zoning compliance. | Must be far enough from borrower’s primary residence to be a “second home,” but close enough for “reasonable personal use.” Both too close and too far can be disqualifying. |
| Income Qualification | Use of a DSCR Ratio for qualification, many lenders can count projected STR income to qualify. | Use of a DTI Ratio for qualification, property considered more of an expense (hindrance) than positive since it uses conservative rental projections and assumes less than half the year rented. |
| Scalability for Investors | Designed for scaling portfolios, generally no cap on number of financed properties. | Capped under conventional loan rules (max 10 financed properties per borrower). |
Posted Sep 1, 2026, 4:36 PM UTC
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