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House hacking—living in one unit of a multi-family property while renting out the others—is a popular strategy among Arizona real estate investors. Two common financing options for this approach are Debt Service Coverage Ratio (DSCR) loans and Federal Housing Administration (FHA) loans. Understanding the differences between these loans can help you choose the best fit for your investment strategy.
What is a DSCR Loan?
A DSCR loan is designed for real estate investors and focuses on the property’s cash flow rather than the borrower’s personal income. Lenders assess the property’s ability to generate income to cover its debt obligations. This type of loan is ideal for investors who may not have traditional income documentation but are purchasing income-generating properties.
What is an FHA Loan?
An FHA loan is a government-backed mortgage that allows buyers to purchase a home with a lower down payment and more flexible credit requirements. It’s particularly beneficial for first-time homebuyers and those with limited funds for a down payment. FHA loans require the borrower to live in the property as their primary residence.
Comparing DSCR and FHA Loans
| Feature | DSCR Loan | FHA Loan |
| Primary Use | Investment properties | Owner-occupied properties |
| Down Payment | Typically 20-25% | As low as 3.5% |
| Credit Requirements | Flexible; based on property income | Minimum credit score of 580 |
| Income Verification | Not required; focuses on property cash flow | Required; includes employment and income docs |
| Occupancy Requirement | Not required; can be non-owner occupied | Must be owner-occupied |
| Mortgage Insurance | Not typically required | Required (MIP) |
Pros and Cons
DSCR Loans
Pros:
- No personal income verification needed
- Ideal for investors with multiple properties
- Focuses on property’s income potential
Cons:
- Higher down payment requirements
- Not suitable for owner-occupied properties
- Interest rates may be higher
FHA Loans
Pros:
- Lower down payment
- Easier qualification for first-time buyers
- Allows for multi-unit properties (up to 4 units)
Cons:
- Must live in the property
- Mortgage insurance premiums required
- Loan limits may restrict property options
Which Loan is Right for You?
- Choose a DSCR Loan if: You’re an investor focusing on rental income and prefer not to provide personal income documentation.
- Choose an FHA Loan if: You’re a first-time homebuyer planning to live in one unit of a multi-family property and want to minimize your down payment.
Frequently Asked Questions
Can I use a DSCR loan for house hacking in Arizona?
DSCR loans are typically for non-owner-occupied properties. If you plan to live in one unit, FHA loans are more appropriate.
What is the minimum down payment for an FHA loan?
FHA loans require a minimum down payment of 3.5%.
Do DSCR loans require mortgage insurance?
Next Steps
If you’re ready to explore financing options for your house hacking venture in Arizona, consider consulting with a mortgage advisor to determine the best loan type for your situation.
Read Next
- DSCR Loans in Arizona Expert Insights
- Best States for DSCR Loans in 2025: Investor-Friendly Rankings
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
