DSCR Loan vs Bank Statement Loan: Which Is Better for Real Estate Investors?

Both DSCR loans and bank statement loans fall under the non-QM umbrella. Both help borrowers who can't qualify through traditional income documentation. But they work in fundamentally different ways, and choosing the wrong one can mean paying a higher rate, providing unnecessary paperwork, or getting declined when you didn't need to be.

Here's the full breakdown so you can pick the right product for your situation.

How a DSCR Loan Works

A DSCR loan qualifies you based on the investment property's rental income compared to its mortgage payment. The lender calculates the Debt Service Coverage Ratio:

DSCR = Gross Monthly Rent ÷ Monthly PITIA Payment

If the property rents for $2,500/month and the full payment (principal, interest, taxes, insurance, HOA) is $2,000/month, the DSCR is 1.25. The lender doesn't ask about your personal income, your job, or your tax returns. The property pays for itself—that's all that matters.

Most DSCR lenders require a minimum ratio of 1.0 (rent covers the payment exactly). Some accept ratios as low as 0.75, but you'll need stronger compensating factors: higher credit score, lower LTV, or larger reserves.

How a Bank Statement Loan Works

A bank statement loan qualifies you based on deposits into your personal or business bank accounts over the past 12–24 months. The lender calculates your income by averaging your monthly deposits and applying an expense factor.

Example: You deposit an average of $25,000/month into your business account over 24 months. The lender applies a 50% expense factor (assuming half goes to business costs), leaving $12,500/month in qualifying income. That $12,500 is used to calculate your debt-to-income ratio just like a conventional loan would use W-2 income.

The expense factor varies by lender and industry. Some use 30%, others use 50% or more. Some lenders allow a CPA letter to document a more favorable expense ratio.

Key Difference in Philosophy

• DSCR loan: "Does the property make money?"
• Bank statement loan: "Does the borrower make money?"

This distinction drives everything—who qualifies, what documentation is needed, and which properties work.

Side-by-Side Comparison

When a DSCR Loan Is the Better Choice

1. You're Buying a Pure Investment Property

If the property is strictly an investment (you won't live in it), DSCR is almost always simpler. You skip income documentation entirely. No bank statements, no CPA letters, no explaining why your deposits fluctuate. The lender orders an appraisal, gets a rent schedule or lease, and underwrites the deal.

2. You Don't Want Your Personal Finances Scrutinized

Bank statement loans require a deep dive into your cash flow. The lender examines every deposit, flags large transfers, and may ask for explanations of irregular activity. If you run multiple businesses, have international transfers, or deposit cash regularly, this process can be painful and time-consuming.

DSCR loans don't look at your bank accounts at all (beyond verifying you have enough reserves for closing).

3. Your Personal DTI Is Already Maxed

If you have $15,000/month in existing debt payments and your bank statement income is $20,000/month, your DTI is 75%—way too high for a bank statement loan. But a DSCR loan doesn't calculate personal DTI. You could have $100,000/month in debt, and as long as the property's rent covers the payment, you qualify.

This is why portfolio investors with 10+ properties almost always use DSCR. Adding another mortgage to your personal DTI would disqualify you, but each property stands on its own with DSCR.

4. You Want a Faster, Simpler Process

DSCR loans have fewer documentation requirements, which means less back-and-forth with the lender. A typical DSCR loan file includes:

• Loan application
• Credit report
• Appraisal with rent schedule
• Lease agreement (if tenant in place)
• Entity documents (if buying in an LLC)
• Proof of reserves (bank statement showing enough for closing + reserves)

A bank statement loan file adds:

• 12–24 months of bank statements (every page)
• CPA letter or profit-and-loss statement
• Business license
• 2 years of self-employment verification
• Explanation letters for large or irregular deposits

5. You Have Inconsistent Personal Cash Flow

Maybe you're between businesses. Maybe you took a year off. Maybe your bank statements are a mess of transfers between accounts. DSCR lenders don't care. The property's income is all that matters.

When a Bank Statement Loan Is the Better Choice

1. You're Buying a Primary Residence or Second Home

DSCR loans are exclusively for investment properties. If you're self-employed and buying a home to live in, a bank statement loan is one of your best non-QM options. You can't DSCR a property you'll live in because there's no rental income to measure.

2. The Property's Rent Doesn't Cover the Payment

Some properties are in expensive markets where rents don't keep pace with purchase prices. A $700,000 condo in San Diego might rent for $2,800/month, but the PITIA payment at 75% LTV is $3,800/month. That's a DSCR of 0.74—below most lenders' minimum.

If your personal income (via bank statements) supports the payment, a bank statement loan gets the deal done even though the DSCR doesn't work.

3. You Want a Higher LTV

Bank statement loans commonly go up to 85%–90% LTV on primary residences and 80%–85% on investment properties. DSCR loans typically max out at 75%–80% for purchases. If you want to put less money down, a bank statement loan may allow it.

4. You Can Document Strong Income

If you're self-employed with consistent deposits—say $30,000+/month flowing through your business account—a bank statement loan can actually get you better terms than DSCR. Higher income means lower DTI, which can unlock lower rates, higher loan amounts, or both.

5. The Property Is Vacant or Undevelopable as a Rental

If you're buying a property you plan to keep vacant for personal use, or it's a type that doesn't generate rental income (like raw land or a property you'll demolish and rebuild), DSCR won't work. Bank statement loans qualify based on your income, so the property's income potential is less relevant.

Rate Comparison in Practice

Rates for both products overlap, but the drivers differ.

DSCR loan rates depend on:

• DSCR ratio (higher ratio = better rate)
• Credit score
• LTV
• Loan amount
• Prepayment penalty structure
• Property type (SFR gets best rates; 2–4 units cost more)

Bank statement loan rates depend on:

• Credit score
• LTV
• DTI
• Loan amount
• Documentation strength (24 months > 12 months)
• Reserves

In general, for a comparable investment property deal:

• A borrower with a 740+ credit score and a DSCR of 1.25+ will see DSCR rates around 7.0%–7.5%.
• The same borrower with 24 months of strong bank statements might see bank statement rates of 6.75%–7.5% on an investment property.

The difference is usually small—0.125% to 0.50%—but the documentation burden for a bank statement loan is significantly higher.

Can You Use Both?

Yes. Some investors use bank statement loans for properties that don't meet DSCR thresholds and DSCR loans for everything else. There's no rule that says you have to pick one.

However, each additional bank statement loan adds to your personal DTI, which limits how many you can get. DSCR loans don't have this problem—they don't report to your personal DTI calculation (though they do show on your credit report as mortgages).

A common strategy for scaling a rental portfolio:

1. Use conventional loans for your first 1–2 investment properties (best rates)
2. Switch to DSCR for properties 3–10+ (no DTI limit)
3. Use bank statement loans only when the property doesn't DSCR—or for your primary residence

Documentation Deep Dive

What a DSCR Lender Asks For

1. Loan application (1003)
2. Credit authorization
3. Appraisal (lender orders; includes rent schedule or Form 1007)
4. Lease agreement (if currently rented)
5. Entity docs (LLC operating agreement, EIN letter)
6. Asset statements (2 months of bank/brokerage statements for reserves + down payment)
7. Insurance quote
8. Title commitment

That's it. No income docs. No employment verification. No tax returns.

What a Bank Statement Lender Asks For

Everything above, plus:

1. 12 or 24 months of consecutive bank statements (personal or business—every single page)
2. CPA letter confirming self-employment and expense ratio
3. Business license or proof of self-employment for 2+ years
4. Profit-and-loss statement (some lenders)
5. Explanation letters for large deposits, NSF fees, or irregular activity
6. 1099s (some lenders use these to supplement)

The bank statement underwriting process is inherently more complex. Underwriters review every deposit, categorize income vs. transfers, apply expense factors, and calculate qualifying income. This takes longer and creates more opportunities for conditions and delays.

Reserves: What You Need on Hand

Both loan types require liquid reserves after closing. Here's what to expect:

DSCR loans: 3–6 months of PITIA per property (some lenders require reserves on all financed properties, not just the subject)

Bank statement loans: 3–12 months of PITIA, depending on LTV and credit score

For a property with a $2,000/month PITIA, 6 months of reserves means you need $12,000 in liquid assets (checking, savings, stocks, retirement accounts) after paying your down payment and closing costs.

Real-World Scenario

Meet Sarah. She's a freelance marketing consultant who makes $180,000/year. She files taxes showing $95,000 after deductions. She wants to buy a rental property for $350,000 that rents for $2,400/month.

Option A: DSCR Loan

• Loan: $262,500 (75% LTV)
• Rate: 7.5%, 30-year fixed
• Monthly PITIA: $2,185
• DSCR: $2,400 ÷ $2,185 = 1.10 ✓
• Sarah provides no income docs. Closes in 25 days.

Option B: Bank Statement Loan

• Average monthly deposits: $15,000
• Expense factor: 40%
• Qualifying income: $9,000/month
• Existing debts: $2,500/month
• New PITIA: $2,185
• DTI: ($2,500 + $2,185) ÷ $9,000 = 52% — borderline, may need compensating factors
• Sarah provides 24 months of bank statements, CPA letter, business license. Closes in 35–40 days.

For Sarah, the DSCR loan is faster, simpler, and doesn't risk a DTI rejection. The bank statement loan adds complexity without a clear benefit for an investment property purchase.

Frequently Asked Questions

Can I use a bank statement loan for an investment property?

Yes. Bank statement loans work for primary residences, second homes, and investment properties. However, the rates on investment properties are higher than on primary residences, and you'll need to meet DTI requirements regardless of the property's rental income.

Do DSCR loans require bank statements at all?

Only to verify reserves and down payment funds—usually 2 months of statements. The lender isn't using them to calculate income. They just want to confirm you have the cash to close.

Which has lower closing costs?

They're comparable. Both charge origination fees (typically 0.5%–2%), appraisal fees ($500–$750), title fees, and standard closing costs. The main cost difference comes from rate: a lower rate saves more over the life of the loan than any closing cost difference.

Can I use a DSCR loan for short-term rentals (Airbnb)?

Some DSCR lenders accept short-term rental income, but they may discount it or require documentation like 12 months of Airbnb income history. Not all lenders allow STR income, so ask upfront. Bank statement loans don't care about the property's rental use—they qualify based on your personal income.

What if I have both W-2 income and self-employment income?

If you have W-2 income, you might qualify for a conventional loan with the best rates. If not, a bank statement loan can blend W-2 and self-employment income. A DSCR loan ignores all of it—only the property matters.

Do either of these loans require an LLC?

Neither requires an LLC, but both allow it. DSCR loans are commonly closed in an LLC. Bank statement loans are typically in your personal name but can be vested in an entity at closing or transferred afterward (check with your lender about due-on-sale implications).

How many DSCR loans can I have at once?

Most DSCR lenders don't cap the number of loans per borrower. Some have portfolio limits (e.g., no more than 10 or 20 loans with one lender), but you can use multiple lenders. Bank statement loans, in contrast, are limited by your DTI—at some point, you simply can't carry more debt relative to your documented income.

The Bottom Line

Choose a DSCR loan when:

• The property is an investment (not your residence)
• The rent covers or exceeds the mortgage payment
• You want minimal documentation and a faster close
• You own multiple properties and your DTI is maxed
• You value simplicity over squeezing out a slightly lower rate

Choose a bank statement loan when:

• You're buying a primary residence or second home
• The property doesn't generate enough rent to meet DSCR minimums
• You have strong, consistent cash flow that supports a good DTI
• You want higher LTV (lower down payment)

For most investors buying cash-flowing rental properties, DSCR is the simpler and faster path. Save the bank statement loan for your personal home or for deals where the rent doesn't support the payment.

Ready to see if your next rental property qualifies for a DSCR loan? Get a free rate quote from HonestCasa in under 5 minutes.