Hard Money vs DSCR Loans for BRRRR Investors
They are not competing products. They are the two halves of the same plan, and almost everything that goes wrong happens at the join.
The short answer. A hard money loan funds the part of the deal a bank will not touch: buying a property that is not currently habitable and paying for the work to fix it. A DSCR loan funds the part that comes after: a long term mortgage on a finished, rented property, underwritten against the rent rather than against your personal income. On a BRRRR deal you need both, in that order, from two different lenders. JDM Capital makes the first loan and does not offer the second, which is exactly why we can describe the second one plainly.
Hard money vs DSCR, side by side
| Compared on | Hard money | DSCR |
|---|---|---|
| What it is for | Buying and renovating a property that is not yet rentable or sellable | Holding a finished, rented property long term |
| What it is underwritten against | The deal. Cost, value, scope and your plan | The property's income. Rent against the monthly payment |
| Condition of the property | Can be uninhabitable, gutted, no kitchen, no certificate of occupancy | Must be finished and, in most cases, leased |
| Does it fund renovation? | Yes, purchase and rehab in one loan | No |
| Term | Short. Months, matched to the project | Long. Typically a 30 year style amortization |
| Speed | Days. Ours closes in as little as 7 | Weeks, because it needs an appraisal and a lease |
| Is your personal income reviewed? | No. It is a business purpose loan against the deal | No, that is the point of DSCR, but the property's income is scrutinized heavily |
| Appraisal | Not required by us | Effectively always required |
| How it gets repaid | You sell, or you refinance into something like a DSCR loan | It is the permanent financing. It does not need an exit |
| Who provides it | Us | Someone else. We do not offer DSCR loans |
Scroll the table sideways to see all of it.
The single most common misunderstanding is treating these as alternatives and asking which is cheaper. They do different jobs at different moments. A DSCR lender will not fund a house with no kitchen. We will not hold a thirty year mortgage. Asking which is better is like asking whether a moving van or a garage is better.
How a DSCR loan actually decides
DSCR stands for debt service coverage ratio. It sounds technical. It is one division problem, and it answers one question: does the rent cover the mortgage payment?
Here is the whole thing:
DSCR = monthly rent divided by monthly payment
Payment means the whole payment. Principal, interest, property taxes, insurance and any association dues. Not just the loan part.
Three examples on the same house, renting at $1,900 a month:
- Payment is $1,900. Rent divided by payment is 1.00. The rent covers the payment exactly and there is nothing left over.
- Payment is $1,520. Rent divided by payment is 1.25. The rent covers the payment with 25% to spare.
- Payment is $2,100. Rent divided by payment is 0.90. The rent does not cover the payment and you are making up the difference out of pocket every month.
Every DSCR lender sets a minimum. When one says "we need 1.25", they are saying the rent has to be at least 25% more than the payment.
Here is why that number decides your loan size. The rent is whatever the market pays. It is fixed. So the only way to hit a higher ratio is a smaller payment, and the only way to get a smaller payment is a smaller loan. A lender asking for 1.30 instead of 1.20 is not being fussy about paperwork. They are handing you less money.
Same $1,900 house, and what each requirement leaves you:
| If your lender asks for a DSCR of | Your whole monthly payment has to fit under |
|---|---|
| 1.00, meaning the rent just has to cover the payment | $1,900.00 |
| 1.10, meaning the rent has to beat the payment by 10% | $1,727.27 |
| 1.20, meaning the rent has to beat the payment by 20% | $1,583.33 |
| 1.25, meaning the rent has to beat the payment by 25% | $1,520.00 |
| 1.30, meaning the rent has to beat the payment by 30% | $1,461.54 |
Scroll the table sideways to see all of it.
Read the bottom two rows against each other. Moving from 1.20 to 1.30 shrinks your allowed payment by about $122 a month on the identical house. Depending on rates, that is tens of thousands of dollars less loan, which is money you have to bring yourself or a deal you cannot do.
So the number to get out of your permanent lender, in writing and before you buy, is their minimum DSCR. Where the bar sits varies by lender, by market and over time. Treat any single figure you hear as that lender's preference rather than an industry rule.
One more thing people get caught by: taxes and insurance sit inside the payment. In a market where both have moved sharply, a tax reassessment or an insurance renewal after you close can push a deal that penciled at 1.25 down below the bar without your rent changing at all.
Where the handoff goes wrong
The loan almost never fails. The handoff between the two lenders does, and it fails in five recognizable ways: seasoning rules, minimum loan size, rent coming in under projection, what your lender counts as stabilized, and a rehab scope built for the wrong exit.
1. Seasoning
Seasoning is how long you must have owned the property before the permanent lender will lend against its new appraised value rather than against what you paid for it. If your lender requires seasoning and you did not know, your cash out refinance is calculated on your purchase price, the whole value you just created is invisible, and your money stays trapped in the deal for months. This is the single most expensive surprise in BRRRR, and it is entirely avoidable by asking one question before you buy.
2. Minimum loan size, which is a real problem in this market
Many DSCR lenders will not write a loan below a floor. In an expensive metro that never comes up. In Philadelphia it comes up constantly, because the city median was $236,000 in the fourth quarter of 2025 on Gillen's index at Drexel and a great deal of the rowhome stock investors buy sits well below that. If you buy at $95,000, put $60,000 in and refinance at 75% of a $210,000 value, you are asking for a loan around $157,000. If your lender's floor is above that, the deal you underwrote does not exist. Nobody tells you this at the start.
3. The rent comes in under projection
Everything in a DSCR calculation sits on top of the rent number. If you underwrote $1,900 and the market gives you $1,650, the ratio moves against you, the loan shrinks, and you have a gap to cover at payoff. Use the rent your own blocks actually achieve.
4. The property has to be stabilized, and stabilized usually means leased
Most permanent lenders want to see a signed lease and a real tenant before they will underwrite on rent. That makes the sequence rehab, then lease, then refinance, and your short term loan has to cover all three stages rather than the first one. Investors routinely budget a term that ends when the work ends, and then discover they need another sixty days to find a tenant.
5. Scope creep in the wrong direction
A flip rewards finishes that photograph well. A rental rewards durability and whatever gets the rent number. They are not the same scope, and money spent on the flip version of a kitchen does not come back to you in a DSCR appraisal. Decide which product you are building before you order cabinets.
The five questions to ask your DSCR lender before you buy
Get the answers in writing, while you can still change the plan.
- What DSCR do you require, and how do you calculate it?
- Is there a seasoning period before you will lend on the new appraised value?
- What is your minimum loan amount?
- What do you count as stabilized, and do you need a signed lease?
- What is your maximum loan to value on a cash out refinance?
Five questions, one email, ten minutes. They will save more money than any rate you negotiate with us.
Underwrite the rent before you underwrite the rehab
Since the whole refinance rests on the rent, here is the real distribution rather than an average. The average apartment rent in Philadelphia was $2,036 as of August 1, 2026, up 1.99% year over year, on an average unit size of 784 square feet. By size that was $1,488 for a studio, $1,859 for a one bedroom, $2,350 for a two bedroom and $3,520 for a three bedroom.
The citywide average is close to useless for a specific deal, because the spread is enormous. At the top, Navy Yard averaged $3,657, Hawthorne $3,533 and Society Hill $3,480. At the other end, Ogontz averaged $1,124, Cobbs Creek $1,162 and Frankford $1,163. That is a three to one range inside one city. Around 32% of Philadelphia rentals fall between $1,501 and $2,000.
Put the Ogontz number into a DSCR calculation and a deal that worked on the citywide average stops working. That is the calculation to run first.
Rent figures from RentCafe market analysis using Yardi Matrix and US Census Bureau data, as of August 1, 2026. These are apartment averages and will not map cleanly onto a single family rowhome rental, so treat them as a sanity check rather than a comp. City price level from the Drexel Lindy Institute Philadelphia House Price Index, published February 5, 2026.
Why we are telling you all this when we do not sell DSCR
Because we have no product on the other side of it. We do one thing, in one market, and we would rather be the fastest option on short term rehab money than a mediocre option on everything. That has a real benefit for you: when we say a deal does not work, that is the only thing we are saying. There is no permanent loan we are trying to move you toward, so pressure testing your refinance before you buy costs us nothing and can save you the deal.
What this means for your loan with us
If you are running BRRRR, our part is the buy and rehab: a fix and hold loan, covering purchase and renovation at up to 100% of cost, with no appraisal, closing in as little as 7 days and draws funded in as little as 24 hours. What we will do differently from a lender that does not care about your exit is push on the rent number and the refinance requirements during underwriting rather than after.
If the plan is actually to sell, read fix and flip loans instead, because the rehab scope and the underwriting should be different. And if the property is a seven figure house, read luxury fix and flip loans, because a DSCR refinance will not clear at that level. The rent a $1.5 million house commands does not come close to covering the debt service on a $1.5 million loan, so the exit there is a sale.
| Term | What it is |
|---|---|
| What the loan covers | Purchase and rehab of a property you intend to keep and rent. |
| Maximum loan to cost | Up to 100% of cost. |
| Maximum loan to ARV | Set on your deal, against the comps we underwrite to. Send the address and you will have a number the same day. |
| Loan amount | Sized to the project. Tell us what you are buying and we will tell you what we can fund. |
| Term | Matched to the scope of work and your exit. We agree it before you sign, so the deadline is one you helped set. |
| Extensions | Available, and we settle the terms of one before you close. Nobody should be negotiating an extension the week it falls due. |
| Minimum credit score | Tell us where you stand and you will get a straight answer on the call. |
| Experience required | Tell us what you have done and we will tell you where that puts you. |
| Exit | Refinance into long term financing once the property is stabilized, or sell. We do not offer DSCR loans, so the permanent loan comes from another lender. |
| Where we lend | Philadelphia, Bucks, Montgomery, Delaware and Chester counties in PA, and Camden, Gloucester and Burlington counties in NJ. All 339 municipalities, with no towns excluded. |
| Property types | Non owner occupied investment property only. These are business purpose loans. |
| Appraisal | Not required. |
| Time to close | As little as 7 days. |
| Rehab draws | Funded in as little as 24 hours. |
| Who underwrites | In house. The person who answers your call is the person who approves the loan and wires the money. |
| Rate and points | Quoted per deal. Call or text 267-228-3289 and we will price it against your actual numbers. |
Scroll the table sideways to see all of it.
Why several rows say to ask us. The numbers that depend on your specific deal get quoted on the call, because a single posted figure would have to be the worst case and would be wrong for most deals. Send us the address, the purchase price and the rehab budget and you will get real numbers from the person who actually approves the loan. Call or text 267-228-3289, email Josh@JDMCapitalLending.com, or send the deal through the form.
Terms are subject to underwriting and approval and are not a commitment to lend.
Local rules that hit the refinance, not the purchase
A few things in our footprint change the arithmetic at the back end of a BRRRR deal, and none of them show up when you are looking at the purchase.
The Philadelphia tax abatement is under used on rehabs, and the deadline is easy to miss. Under Ordinance 961 there is a 10 year abatement on the improvement value for rehabilitation of existing residential property. You must apply by December 31 of the year the building permit is issued. It cuts your property tax on the improvement for a decade, which lands directly in the debt service coverage your permanent lender calculates, because taxes sit inside the payment. Applying late costs you the whole thing, and it is worth real money over a hold.
Rental licensing differs by municipality and some of it is annual. Ridley Township in Delaware County requires a certificate of use for every rental unit each year, occupied or not. The City of Camden has a rent control ordinance indexed to the Philadelphia area consumer price index, plus a rental approval certificate required before occupancy. In Philadelphia you need the recorded deed rather than a sheriff sale receipt before you can get a rental license, which matters if you bought at auction.
None of these change whether we lend. All of them change your pro forma, and the ones that touch your tax bill or your ability to place a tenant touch your DSCR.
Philadelphia abatement per the City of Philadelphia. Local licensing rules change, so confirm with the municipality before you rely on any of this.
Hard money and DSCR questions
What is the difference between a hard money loan and a DSCR loan?
A hard money loan is short term financing to buy and renovate a property that is not yet rentable, underwritten against the deal. A DSCR loan is long term financing on a finished, rented property, underwritten against whether the rent covers the payment. On a BRRRR deal you use the hard money loan first and the DSCR loan second, and they normally come from two different lenders.
Can I get a DSCR loan on a property that needs work?
Generally no. DSCR underwriting depends on the property producing rent, so the property has to be finished and, in most cases, leased. That gap between "bought" and "rentable" is precisely what a hard money loan exists to fill.
What DSCR do lenders require?
It varies by lender, by market and over time, so get your lender's answer in writing rather than trusting a number on a web page. What matters more is what the requirement costs you in payment room. On a property renting at $1,900 a month, a 1.20 requirement means your entire monthly payment, including taxes and insurance, has to fit under $1,583.33. At 1.25 it drops to $1,520.
What is seasoning and why does it matter?
Seasoning is a minimum ownership period before the permanent lender will lend against the property's new appraised value rather than what you paid. If your lender requires it and you did not plan for it, your cash out refinance is calculated on your purchase price, the value you created is ignored, and your capital stays stuck in the deal. Ask about it before you buy. It is the most expensive question people forget.
Does JDM Capital offer DSCR loans?
No. We fund the purchase and the rehab, and the permanent loan comes from someone else. We say so up front because it changes who you should be talking to and when. It also means that when we tell you a deal does not work, we have nothing else to sell you.
Should I get the DSCR lender lined up before I close with you?
Yes, and it is the single best piece of advice on this page. Ask them five things in writing: their required DSCR and how they calculate it, whether there is a seasoning period, their minimum loan amount, what they count as stabilized, and their maximum loan to value on a cash out. Do it while you can still change the rehab scope or the rent target.
Is a minimum loan amount really a problem in Philadelphia?
More than anywhere else in this region. The city's median was $236,000 in the fourth quarter of 2025 on Gillen's index at Drexel, and plenty of investor rowhome stock trades well below that. A refinance around $150,000 is a normal outcome here and it sits under some lenders' floors. Get the floor in writing while you can still walk away from the purchase.
Send us the deal
Address, purchase price, rehab budget and your rent target is enough to get a real answer.