Three Paths Out of Hard Money
Once your investment property is stabilized with rehab complete and a tenant in place, you have three main refinance paths to exit your hard money loan: a DSCR loan, a conventional loan, or an FHA loan. Each serves a different investor profile and comes with distinct advantages and trade-offs. The right choice depends on your portfolio size, income documentation situation, entity structure, and long-term investment goals.
The Complete Comparison
| Factor | DSCR Loan | Conventional | FHA |
|---|---|---|---|
| Qualification Method | Property income (DSCR) | Borrower income (DTI) | Borrower income (DTI) |
| Typical Interest Rate | 7% – 8.5% | 6% – 7.5% | 5.5% – 7% |
| Max LTV (Cash-Out) | 75% – 80% | 75% | 80% – 85% |
| Min Credit Score | 660 – 680 | 680 | 580 |
| Seasoning | 0 – 6 months | 6 months | 6 – 12 months |
| Closing Speed | 21 – 45 days | 30 – 60 days | 30 – 60 days |
| Documentation | Lease, appraisal, entity docs | Tax returns, W-2s, pay stubs, bank statements | Tax returns, W-2s, pay stubs, bank statements |
| Property Types | SFR, 2-4 unit, condo, 5+ unit | SFR, 2-4 unit, condo | 1-4 unit (owner-occupied) |
| DTI Requirement | None | ≤ 45% – 50% | ≤ 50% |
| Max Financed Properties | Unlimited | 10 (Fannie Mae) | 1 (primary only) |
| LLC/Entity Ownership | Yes | No (personal name) | No (personal name) |
| Prepayment Penalty | Often 3-5 year | None | None |
| Cash-Out Available | Yes | Yes | Yes (primary only) |
| Mortgage Insurance | None | None (if ≥ 20% equity) | Required (MIP for life) |
| Best For | Portfolio investors, self-employed, scaling | W-2 employees with few properties | House-hackers on 2-4 unit |
When to Choose a DSCR Loan
DSCR loans are the right choice for investors who own 4 or more properties, are self-employed or have complex tax returns, need LLC ownership for asset protection, want to avoid income documentation requirements, or are actively scaling their portfolio past the 10-property Fannie Mae limit.
Consider this scenario: an investor owns 8 rental properties through her LLC. She is self-employed and her tax returns show low adjusted gross income due to depreciation deductions. Conventional underwriting would likely reject her application or require extensive documentation and explanation. A DSCR lender evaluates only the property's rent-to-payment ratio and closes in 30 days with the property remaining in her LLC. Read the full DSCR refinance guide →
When to Choose a Conventional Loan
Conventional loans are ideal for investors with fewer than 10 financed properties, strong W-2 income that documents cleanly, a desire for the lowest possible interest rate, and no requirement for LLC ownership. The rate advantage of 1% to 2% below DSCR pricing can save thousands annually.
Example scenario: a software engineer with strong W-2 income owns 3 rental properties. His DTI is well under 45% even with the new mortgage payment included. He qualifies easily for a conventional cash-out refinance at 6.5%, a full 1.5% below the best available DSCR rate. On a $250,000 loan, that saves approximately $250 per month compared to DSCR pricing.
When to Choose an FHA Loan
FHA loans are specifically for owner-occupant situations. They are ideal for house-hackers executing a BRRRR strategy on a 2 to 4 unit property where they live in one unit, first-time investors wanting the lowest possible down payment, and borrowers who need the most favorable credit score requirements.
Example: an investor purchased a duplex with hard money, renovated both units, and now lives in one while renting the other. An FHA refinance provides 85% LTV at approximately 6%, offering higher leverage and a lower rate than DSCR. The limitation: he must continue to live in the property and it must remain in his personal name.
Model all three options with your actual deal numbers.
Open the Calculator →The Hybrid Strategy: Two-Step Refinance
Advanced investors sometimes use a two-step approach. First, refinance the hard money into a DSCR loan for a fast, simple exit within 3 to 6 months. Second, refinance the DSCR loan into a conventional loan 12 to 24 months later when pursuing the lowest possible long-term rate.
The DSCR exit is fast and requires minimal documentation, making it ideal when you need to get out of hard money quickly. The subsequent conventional refinance is a rate optimization play you can execute at your convenience once the expensive hard money is gone.
Check your DSCR prepayment penalty terms before planning a two-step strategy. A 5-year prepayment penalty would defeat the purpose. Look for DSCR lenders offering 1-year or no prepayment penalty options if you anticipate refinancing again within a few years.
Cash-Out Differences by Loan Type
On a property appraised at $350,000, here is how cash-out capacity differs: a DSCR loan at 75% LTV provides a $262,500 loan (some lenders go to 80% for $280,000 but at higher rates). A conventional loan at 75% also provides $262,500. An FHA loan at 85% provides $297,500 but is restricted to owner-occupied properties only.
For pure investment properties, DSCR and conventional offer similar maximum cash out. The difference is in qualification requirements, speed, and documentation, not leverage.
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