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Student housing is a lucrative real estate niche, driven by consistent demand near universities and colleges. But as with any investment, securing the right financing is key to maximizing returns and reducing risk. In this article, we compare DSCR (Debt Service Coverage Ratio) loans and conventional loans for student housing to help investors determine which is the better choice.
What Are DSCR Loans?
Debt Service Coverage Ratio (DSCR) loans are a type of non-QM (non-qualified mortgage) financing option. These loans are underwritten based on the income generated by the property itself, rather than the borrower’s personal income.
Key Features:
- Based on the property’s net operating income (NOI) and debt obligations.
- No personal income verification required.
- Faster approval timelines and fewer documentation hurdles.
- Ideal for investors with multiple properties or inconsistent W-2 income.
Looking to get approved for a DSCR loan? Contact our loan specialists for a free consultation today.
What Are Conventional Loans?
Conventional loans are traditional mortgages offered by banks and lending institutions, often conforming to Fannie Mae and Freddie Mac guidelines.
Key Features:
- Heavily based on personal credit, income, and debt-to-income (DTI) ratio.
- Often require tax returns, W-2s, pay stubs, and asset verification.
- Lower interest rates for highly qualified borrowers.
- Standard down payment ranges from 5% to 25%.
DSCR vs Conventional Loans: Key Comparisons for Student Housing
| Feature | DSCR Loans | Conventional Loans |
| Approval Basis | Based on property cash flow (DSCR) | Based on personal income and credit |
| Documentation | Minimal (no tax returns or W-2s) | Extensive income verification required |
| Speed to Close | Faster | Slower |
| Down Payment | Typically 20-30% | As low as 5-10% with strong financials |
| Property Type Flexibility | Excellent for student housing, short-term rentals | May have restrictions on non-owner-occupied or multi-tenant housing |
| Loan Limits | Flexible | Subject to conforming loan limits |
| Interest Rates | Slightly higher due to increased lender risk | Lower for highly qualified borrowers |
Why DSCR Loans May Be Better for Student Housing
1. Income-Based Approval Is a Game-Changer
Student housing often produces reliable rental income due to high demand near universities. With DSCR loans, if the property can generate enough to cover the mortgage and expenses (usually a 1.2x DSCR ratio is required), approval is more attainable—even if you’re self-employed or have irregular income.
2. Simplified Documentation
Most lenders don’t require tax returns or employment verification. This streamlined process makes DSCR loans ideal for portfolio investors or those scaling quickly.
3. Faster Closings Mean Less Missed Opportunities
In competitive student housing markets, speed is critical. DSCR loans typically close within 2-4 weeks, giving investors an edge when bidding.
4. Multi-Tenant Friendly
Conventional loans may flag student housing as higher risk, especially if leased by the bedroom. DSCR lenders are often more flexible with this model.
Curious about your property’s DSCR? Get a free rental income assessment today!
When Conventional Loans Make Sense
Conventional loans may still be a great fit in certain scenarios:
- Strong personal income and credit: If you have a stable W-2 job, excellent credit, and low DTI, you may qualify for better interest rates.
- Primary residence option: Planning to live in one of the units while renting out the rest? Conventional loans could provide more favorable terms.
- Lower upfront capital: If minimizing the down payment is a priority, some conventional options may only require 5-10% down.
Not sure which loan is best for your student housing property? Talk to a financing expert for tailored advice.
FAQ: DSCR vs Conventional Loans for Student Housing
What is the typical DSCR requirement for approval?
Most lenders require a DSCR of at least 1.20, meaning the property must generate 20% more income than its debt obligations.
Can I refinance a conventional loan into a DSCR loan?
Yes. Many investors refinance into DSCR loans to access equity or eliminate income documentation.
Are student housing properties considered high risk by lenders?
Conventional lenders may consider them higher risk, especially if the lease structure is by-the-room. DSCR lenders tend to be more accepting of these arrangements if the income supports the debt.
Read Next
- How to Use DSCR Loans to Refinance High-Interest Investor Debt
- DSCR Loan Credit Score Requirements Explained
DSCR and conventional loans both have their place in the investor’s toolkit. For student housing specifically, DSCR loans offer unmatched flexibility, speed, and scalability, making them a compelling option for serious real estate entrepreneurs.
Get Expert Investment Financing
- Matched with investor-friendly lenders
- Fast pre-approvals-no W2s required
- Financing options fro rentals, BRRRR, STRs
- Scale your portfolio with confidence
Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
