DSCR Loan Canada [2023]: How to Get a DSCR Loan as a Canadian

Amresh Singh, CEO - HomeAbroad  by Amresh Singh
8 min read
DSCR Loan Canada

Welcome to DSCR Loan Canada! Here, we’ll provide a thorough overview of debt service coverage ratio (DSCR) loans and what Canadian investors need to know.

Join us as we dive into DSCR loans for Canadians buying investment property in the USA.

Definition of DSCR Loan Canada

DSCR financing is essential for Canadian real estate investors in the USA. These loans provide a way to finance property purchases by leveraging the income generated from that property to pay off the mortgage or loan.

DSCR < 1Cannot Cover Debt Payment
DSCR = 1Cover Debt Payment
DSCR > 1Generates Revenue

This DSCR ratio is the main qualifying factor for the DSCR loan, and you don’t need to do personal income verification.

Real estate investors and developers commonly use the DSCR loan to finance properties such as apartment buildings, office spaces, Airbnb, and retail centers.

Check your eligibility for a DSCR loan as a Canadian. (It’s free)

Real-life Example of DSCR Loans for a Canadian Investor

Meet Sarah, an investor in Canada who has been observing the real estate market in the USA for some time. She recently discovered a property she thinks would be a great addition to her portfolio.

Still, there’s one problem: Sarah needs more cash to purchase it, and as she’s not a US citizen, she needs a US credit score for a conventional mortgage.

That’s where DSCR loans come in. DSCR loans, or as we call them, Debt Service Coverage Ratio loans, are financing commonly used in real estate investing.

  • Sarah contacted a lender in the USA and applied for a DSCR loan to finance her property purchase.
  • The lender determined that the property’s net operating income was sufficient to cover the debt service and approved Sarah for the loan. Moreover, she learned Canadian citizens don’t require a credit score to qualify.
  • With the loan, Sarah could acquire and generate income from the property she wanted.
  • She can now use the property as collateral for future investments, allowing her to grow her real estate portfolio even further.

Thanks to the flexibility and accessibility of DSCR loans, Sarah was able to achieve her investment goals and expand her portfolio beyond the Canadian market.

To start the DSCR loan process, HomeAbroad can connect you with the best DSCR loan lender for Canadians.

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How is DSCR Used in the DSCR Loan Application Process?

The DSCR loan measures the borrower’s ability to cover the loan payments.

DSCR is the property’s net operating income and mortgage payment ratio after vacancy loss and operating income to the total mortgage payment.

A DSCR ratio of 1 or more means the net income of your property is equal to or more than the mortgage payment. Hence, your property will take care of the mortgage payments.

DSCR Loan Requirements for Canadians

Borrowers must meet specific criteria for approval for a DSCR loan. Requirements for a DSCR loan are:

1. DSCR ratio of 1 or more

Most DSCR lenders require a property with a DSCR ratio of 1 or more to ensure the property can cover the mortgage. Hence, finding investment property at a strategic location with enough rental income potential is crucial. Here are the best places to buy the rental property in the USA.

2. Down payment of 20-25%

The DSCR loan down payment requirement may vary from lender to lender. Generally, it’s 20-25%, but considering lenders will not consider your credit score, you might have to pay a higher down payment.

How is Debt Service Coverage Ratio Calculated for Canadians Getting DSCR Loans?

You can calculate it by dividing the gross debt service ratio by the net operating income of a property by its total debt payments, including principal and interest payments.

But first, let us learn how to calculate the debt service coverage ratio:

Explanation of How the Ratio is Calculated

To calculate the DSCR ratio of rental property, you need to determine the rentable income of the property. Then, divide the net operating income by mortgage payment to find the DSCR.

Net operating income (NOI) = Gross rental income – Vacancy loss – Operating Expenses

The formula for Debt Service Coverage Ratio (DSCR) is as follows:

DSCR Ratio Formula

Knowing and understanding your DSCR ratio can help you secure a loan with favorable terms, allowing you to maximize your return on your investment. You can also calculate your DSCR ratio using our blog’s DSCR calculator.

US Mortgages with no US credit history

Ready to apply for a DSCR loan?

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Factors Considered When Evaluating a DSCR Loan

When evaluating a loan application, the lender will look at the borrower’s net operating income and debt service coverage ratio (DSCR). The DSCR measures how much of the property’s rental income is available to cover its monthly debt payments.

By understanding these factors, borrowers can confidently apply for DSCR loans knowing they have what it takes to get approved.

With HomeAbroad’s help, we can connect you with a reputable lender so that you can get the best terms on your loan. So, contact us today, and we’ll assist you in finding the right lender for your investment needs.

US Mortgages with no US credit history

Connect with the Best DSCR Lenders

Get quotes from multiple lenders to compare and pick the best one!

What are the Interest Rates for DSCR Loan?

Interest rates for DSCR loans vary depending on the lender and the borrower’s situation. However, borrowers with a higher DSCR may be eligible for lower interest rates.

Check the latest DSCR interest rates.

What are the Program Costs and Fees of DSCR?

The cost of a DSCR loan will vary from lender to lender. Generally, lenders charge an origination fee between 0.5-1.0% of the loan amount, closing costs, and other processing fees.

Borrowers should also factor in other costs, such as late payment penalties and prepayment penalties when calculating their total loan cost. The fee typically falls between $300 and $500.

Step-by-Step Process of Obtaining DSCR Loans Canada

If you are looking to obtain a DSCR loan, there is a step-by-step process you should follow.

DSCR Loan Process
  • Step 1: you must research the different lenders and choose one that offers DSCR loans. You can also contact HomeAbroad for assistance in finding the right lender.
US Mortgages with no US credit history

Connect with the Best DSCR Lenders

Get quotes from multiple lenders to compare and pick the best one!

  • Step 2: Complete the loan application and provide all the necessary documents.
  • Step 3: You must gather all the required financial papers, such as rental income statements. This step is crucial as it will help determine your eligibility for a loan.
  • Step 4: Depending on the lender’s requirements, you might have a home inspection.
  • Step 5: You must submit a loan application and await the lender’s decision.
  • Step 6: If approved, you must submit additional documents for verification.
  • Step 7: Finally, once approved, you can use the funds to purchase or refinance a property.

Here is the detailed DSCR loan application process.

Advantages of Obtaining a DSCR Loan

If you’re a business owner, many different financing options are available. One such option is a debt service coverage ratio (DSCR) loan. Here are some of the advantages of obtaining a DSCR loan:

  • Qualify for a Mortgage based on your Rental Income 
  • No W2s or employment documents are required
  • Easier to Qualify for Financing
  • No Personal Income Verification by Lenders
  • Commit to Multiple Properties at a Time

At HomeAbroad, we understand the importance of obtaining a DSCR loan and help borrowers find the right lender to get the best loan terms. So, contact us today, and let our lenders allow you to secure the financing you need for your investment property.

US Mortgages with no US credit history

Connect with the Best DSCR Lenders

Get quotes from multiple lenders to compare and pick the best one!

Disadvantages of Obtaining a DSCR Loan

While there are several advantages to obtaining a DSCR (Debt Service Coverage Ratio) loan, there are also a few potential disadvantages to consider before pursuing this type of financing.

These disadvantages include the following:

  • Higher Interest Rates Compared to Conventional Mortgages
  • High Down Payment

Overall, if you’re looking to secure a DSCR loan as a Canadian, HomeAbroad can help you find the right lender and provide all the information you need to get the best terms on your loan.

US Mortgages with no US credit history

Ready to apply for a DSCR loan?

Check your eligibility and get a quote.

Why Should Canadians Invest in the US Real Estate?

The US real estate market is one of Canadians’ most attractive investment opportunities. With a DSCR loan, Canadians can leverage their existing capital to purchase and generate income from properties in the USA.

Investing in US real estate also comes with numerous benefits, such as:

  1. Access to higher rental yields. Orlando has an average rental yield of 7.07%.
  2. Lower volatility than the stock market.
  3. A diversified portfolio and access to new markets.
  4. Tax Advantages for investment income or low taxes.
  5. Stable currency and interest rates.

Real estate investing can be a great way to grow wealth, but you must have the right tools and know-how. With an understanding of DSCR loans and their benefits, Canadians can make the most of the US real estate market.

Canada Vs. US Real Estate Market Comparison

The US real estate market has much to offer Canadian investors, from access to new markets and higher rental yields to tax advantages for investment income.

However, before investing in foreign real estate, it’s crucial to analyze the potential risks and rewards. Here is a quick comparison of the US and Canadian real estate markets.

Real Estate Market ComparisonCanadaUSA
Average Home Price$686,371$400,706
Average Rental Price$2,004$2,053
Unemployment Rate5.0%3.4%
Median Household Income$73,000$79,939
Appreciation5.6%13.5%

Top 5 Places Canadians Buy Investment Property in the USA

Are you looking to purchase an investment property in the USA? Here are the top 5 places Canadian investors buy investment property in the US:

1. Florida

Average Home Price$383,063
Appreciation8.2%
Average Rent$1,218

10+ Best Places to Buy a House in Florida [2023]

2. Arizona

Average Home Price$409,038
Appreciation0.6%
Average Rent$1,097

How to Buy a House in Arizona? Complete Guide

3. Texas 

Average Home Price$294,336
Appreciation4.7%
Average Rent$1,082

7 Best Places to Buy Investment Property in Texas

4. California

Average Home Price$728,134
Appreciation1.7%
Average Rent$1,586

11 Best Places to Buy a House in California in 2023

5. New York

Average Home Price$411,304
Appreciation4.2%
Average Rent$1,315

10 Best Places to Invest in New York

At HomeAbroad, we connect you with the best DSCR lender according to your case to get you the best loan terms possible.

US Mortgages with no US credit history

Connect with the Best DSCR Lenders

Get quotes from multiple lenders to compare and pick the best one!

Conclusion

In conclusion, obtaining a DSCR loan can benefit investors looking to buy investment property in the USA.

It allows borrowers to get an investment property loan without personal income verification and a US credit score, making it the most convenient for Canadians to buy investment property in the US.

Let HomeAbroad find the best DSCR loan lender to buy your investment property in the US from Canada, so apply for a DSCR loan today.

US Mortgages with no US credit history

Connect with the Best DSCR Lenders

Get quotes from multiple lenders to compare and pick the best one!

Frequently Asked Questions

  1. What is a good DSCR ratio?

    Ans. A good DSCR ratio is typically 1 or higher, meaning a property’s net operating income covers the total debt payments at least once.

    A lower DSCR ratio indicates that it may be challenging to cover debt payments and raises concerns for lenders regarding their loan’s safety.

  2. What is the Net Operating Income of DSCR investor loans?

    Ans. Net operating income (NOI) in DSCR investor loans is the gross rental income of a property minus any expenses associated with managing and maintaining it, such as taxes, utilities, building maintenance, insurance, etc.

  3. Is rental income counted for debt service ratios?

    Ans. Yes, rental income is counted for debt service ratios and is used to calculate the DSCR of a property for loan eligibility purposes.

  4. How to get a DSCR loan as a Canadian?

    Ans. To get a DSCR loan as a Canadian, you must meet the lender’s requirements and have sufficient net operating income relative to your debt payments.

    HomeAbroad can help you find the right lender and provide all the details you need to get the best terms on your loan. So, reach out to us today!

  5. How much do you need down for a DSCR loan?

    Ans. The amount of down payment required for a DSCR loan depends on the lender but typically requires at least 20-25% of the purchase price or appraised value as a down payment.

    However, some lenders may require less or more depending on their criteria.

  6. Is a DSCR loan good?

    Ans. Yes, a DSCR loan can be an excellent option for investors because you can qualify for this loan based on the rental income from your property instead of your personal income.

  7. What is the interest rate for the DSCR in 2023?

    Ans. The interest rate for a DSCR loan in 2023 will depend on the lender. Check this page to know the latest DSCR interest rates.

  8. How many DSCR loans can you have?

    Ans. The number of DSCR loans you can have depends on the lender’s criteria. Therefore, tell your lender how many properties you can buy.

  9. Where can I get a DSCR loan?

    Ans. You can get a DSCR loan from many lenders, including banks and other financial institutions.

    HomeAbroad can help you find the best lender for your specific needs and provide all the knowledge you need to make a good decision. Connect with us today!

  10. Are DSCR loans available in Canada?

    Ans. No, DSCR loans are not available in Canada. However, DSCR loans are available in the US for buying investment property in the US. It’s available for both foreigners and US citizens.

  11. Q11. How can I get a DSCR loan?

    Ans. To get a DSCR loan, you must meet the lender’s criteria and have sufficient net operating income relative to your debt payments.

    HomeAbroad can help you find the right lender for your needs and provide all the details you need to make a good decision. Reach out to us today!

Amresh Singh, CEO - HomeAbroad
About the author:
Amresh Singh is the founder & CEO of HomeAbroad and has an extensive 12+ years of experience in the financial services and mortgage industry - building business development and product strategy and leading customer strategy in the financial services industry domain.
Prior to co-founding HomeAbroad, Amresh has worked for one of read more...
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