Private Money Hawaii

DSCR vs Hard Money Loans in Hawai‘i: Best Option for Investors

If you’re an investor buying property in Hawai‘i, two of the most commonly-used loan types are DSCR loans and hard money loans. Both are flexible financing options designed for investors—not homeowners—and both allow borrowers to buy without traditional income verification.

But while they may seem similar, DSCR loans and hard money loans serve very different purposes, and choosing the wrong one can slow down your deal, increase your costs, or even cause you to miss out on a property.

As a local Hawai‘i lender who arranges both DSCR and hard money deals every week, I’m going to walk you through exactly how each loan works, when you should use one over the other, and how these loans fit into strategies like the BRRRR method.

What Is a DSCR Loan?

A DSCR loan—short for Debt Service Coverage Ratio—is a real estate investment loan that qualifies borrowers based on rental income, not personal income.

That means:

• No tax returns
• No W-2s
• No pay stubs
• No employment verification

Instead, the lender evaluates how much rental income the property can produce.

DSCR Formula:

DSCR = Monthly Rent ÷ Monthly Housing Payment

If the rent covers the payment (DSCR ≥ 1.0), you typically qualify.

What Is a Hard Money Loan?

A hard money loan is a short-term, asset-based loan used for:

• Fix-and-flips
• Distressed properties
• Fast closings
• Properties needing repair
• Bridge loans
• BRRRR acquisitions
• Non-warrantable condos
• Lava zone homes
• Property banks avoid

Hard money lenders care more about:

• The property value
• Your down payment or equity
• Your exit strategy

Than your income or tax returns.

These loans often close in 3–7 days, making them ideal for competitive Hawaii deals.

Key Differences Between DSCR and Hard Money Loans

Here are the biggest differences investors should understand:

1. Loan Purpose

DSCR:

Best for long-term rental properties.

Hard Money:

Best for short-term acquisitions, flips, distressed homes, and fast financing.

2. Loan Term

DSCR:

• 30-year fixed
• Long-term

Hard Money:

• 6–12 months
• Short-term

3. Speed of Closing

DSCR:

2–4 weeks

Hard Money:

3–7 days (sometimes faster)

4. Property Condition

DSCR:

Property must be:

• Rent-ready
• Safe
• Livable
• Conforming

Hard Money:

Property can be distressed, including:

• Termite damage
• Old electrical panels
• Roof leaks
• Unpermitted additions
• Missing kitchen
• Mold issues
• Condotels
• Lava zones

Hard money lenders are comfortable with properties banks won’t touch.

5. Documentation Requirements

DSCR:

• Rent estimates (AirDNA or market rents)
• Basic credit score
• Appraisal
• Reserves

Hard Money:

• Minimal documentation
• Focus on equity + ARV
• BPOs instead of appraisals

6. Cost

DSCR:

• Lower interest rates
• Better for long-term holding

Hard Money:

• Higher rates and points
• Designed for short-term use only

7. Down Payment Requirements

DSCR:

20–25% down

Hard Money:

20–30% down
BUT creative financing (cross-collateral, private capital, ARV-heavy deals) can lower this.

Which Loan Is Right for Your Hawaii Investment?

Here’s how to decide:

Use a DSCR Loan When:

• You’re buying a rental property
  Whether long-term (12-month lease) or short-term rental (Airbnb), DSCR is ideal.
• You want long-term financing
  30-year fixed loans with no income verification.
• The home is in good condition
  DSCR lenders require rent-ready properties.
• You want predictable monthly payments
  Great for portfolio growth.

Use a Hard Money Loan When:

• You need to close fast (3–7 days)
  Perfect for competitive markets like O‘ahu and Maui.
• You’re buying a distressed property
  Hard money is built for:
  • Fixer uppers
  • Auction properties
  • Outdated or damaged homes
• The home needs renovation
  Hard money funds rehab costs through ARV lending.
• You are using the BRRRR strategy
  Buy–Rehab–Rent–Refinance–Repeat.
• You don’t qualify for DSCR yet
  Credit issues? No tax returns? Property not rent-ready?
  Hard money is the bridge.