Fix-and-Flip Financing: Hard Money vs DSCR Loans

Flipping properties is one of the fastest-growing real estate investment strategies—but success depends heavily on choosing the right financing. Two of the most popular loan options for fix-and-flip investors are hard money loans and DSCR (Debt Service Coverage Ratio) loans. Each has distinct advantages, requirements, and use cases that can impact your profitability and risk exposure.

In this guide, we break down both options to help you make an informed financing decision for your next investment.

What Is a Hard Money Loan?

A hard money loan is a short-term, asset-based loan typically used by real estate investors for quick property acquisitions, especially in fix-and-flip scenarios. These loans are funded by private lenders or investment groups rather than traditional banks.

Key Features

• Speed: Approval and funding can happen in days, making them ideal for competitive markets.
  
• Collateral-based: Approval is based primarily on the property’s value rather than your credit score or income.
  
• Short-term: Typical terms range from 6 to 18 months.
  
• Higher interest rates: Often between 8%–15%, with points or fees upfront.
  

Pros

• Fast closings
  
• Lenient qualification requirements
  
• Flexible loan structures
  

Cons

• High cost
  
• Short repayment window
  
• Balloon payments are common
  

Ready to flip your next property? Explore hard money loan options with us.

What Is a DSCR Loan?

A DSCR loan evaluates a property’s income-generating potential rather than the borrower’s personal financials. It’s increasingly popular among real estate investors focused on buy-and-hold or short-term rental strategies—but it’s also applicable in some fix-and-flip scenarios.

Key Features

• DSCR-based approval: Lenders assess how well the rental income covers debt payments (DSCR = Net Operating Income ÷ Debt Payments).
  
• Longer terms: Often amortized over 30 years.
  
• Lower rates: Compared to hard money, typically ranging from 6%–10%.
  
• More suited to income-producing properties
  

Pros

• No personal income verification
  
• More predictable, long-term financing
  
• Lower monthly payments
  

Cons

• Slower underwriting process than hard money
  
• Not ideal for non-rentable or underperforming properties
  
• Minimum DSCR requirements (usually 1.0–1.25)
  

Want predictable cash flow? Check if you qualify for a DSCR loan.

Hard Money vs DSCR Loans: Side-by-Side Comparison

Which Financing Option Is Right for You?

Choose Hard Money If:

• You need to close fast on a distressed or auction property
  
• Your personal credit or income doesn’t meet bank standards
  
• You plan to renovate and sell quickly within 6–12 months
  

Choose DSCR Loans If:

• The property will generate rental income during or after the flip
  
• You want to hold the property after renovations
  
• You need lower monthly payments and long-term stability
  

Common Scenarios for Each Loan Type

• Fix-and-Flip in a Hot Market: Hard money loan provides speed and flexibility to secure the deal and fund renovations.
  
• BRRRR (Buy, Rehab, Rent, Refinance, Repeat): Use a hard money loan initially, then refinance into a DSCR loan post-rehab for long-term cash flow.
  
• Short-Term Rental Property: DSCR loans allow you to qualify based on projected rental income from platforms like Airbnb.
  

Talk to a financing advisor to get a personalized loan strategy for your next project.

FAQs

Read Next

• Top DSCR Loan Programs in 2025: Rates, Terms & Lender Comparisons
• DSCR Loan Requirements by State: What You Need to Qualify in All 50 States
  
  

By understanding the nuances between hard money and DSCR loans, fix-and-flip investors can align their financing strategy with their investment goals, timeline, and exit plan. Both financing types have their place—choose the one that gives you the edge in your next deal.