Comparison · Los Angeles
DSCR vs. conventional loans for LA rental properties
Short answer
If your tax returns show strong income and you're buying in your own name, check conventional first. If write-offs shrink your taxable income, you want to buy in an LLC, or you're past a handful of financed properties, DSCR may fit better. In LA, the catch with DSCR is that rents often don't fully cover the payment at today's prices.
Side by side
| Conventional | DSCR | |
|---|---|---|
| Qualifies on | Your personal income and debts | The property's rent compared with its payment |
| Tax returns | Usually required | Usually not required |
| Buy in an LLC | Generally no, title in your name | Commonly allowed |
| Financed properties | Fannie Mae caps it at 10 | Many lenders don't set a cap |
| Prepayment penalty | Generally none | Common; terms vary by lender |
| Pricing and terms | They differ, and they move. I quote both side by side for the same property so you can see the real tradeoff. | |
Why LA changes the math
- Prices are high relative to rents. A DSCR loan needs the rent to cover the payment. In much of LA it doesn't fully cover it unless you put more down. Some programs allow a ratio below 1.0, usually with tradeoffs.
- Rent control caps rent growth. Many older apartments fall under the City of LA Rent Stabilization Ordinance, and many other rentals under California's AB 1482. Don't count on raising an existing tenant's rent to make the ratio work.
- Higher loan limits help conventional. LA County is a high-cost area, so conforming loan limits there are higher than most of the country. Check the current limit on FHFA's site.
- Insurance can swing the numbers. Get a quote early. It's part of the payment on both loan types.
- Unpermitted units may not count. An appraiser may not credit rent from an unpermitted unit or ADU on either loan type.
When conventional usually fits
- Your tax returns show income that supports the payment
- You're fine holding title in your own name
- You own fewer than 10 financed properties
- You might sell or refinance soon and don't want a prepayment penalty
When DSCR usually fits
- Write-offs lower your taxable income
- You want to close in an LLC
- You're scaling past conventional limits
- The rent covers the payment, or close to it, with the down payment you have
Self-employed and the rent is tight? A bank statement loan is a third option worth comparing.
Run your own numbers with my free DSCR rent-coverage worksheet.
Quick answers
Can I buy an LA rental in an LLC with a conventional loan?
Generally no. Conventional loans sold to Fannie Mae and Freddie Mac are made to individuals. DSCR loans commonly allow an LLC.
Can I refinance from DSCR to conventional later?
Often yes, if you qualify and the property is in your name. Check the prepayment penalty first.
Investing outside LA?
Read the nationwide version of this comparison.
Sources
Is this you? Book a call.
Send me the address, the rent and your down payment. I'll run it both ways and show you which programs may fit.
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About Jayson Cain
I'm a mortgage loan originator in Los Angeles and a real estate investor who finances my own rental. I help investors and self-employed borrowers understand which programs may fit.