Unfortunately, DSCR loans are not available in Canada. However, you can get a DSCR loan as a Canadian, but only if you wish to invest in the US real estate market, which is far larger and offers more opportunities than the Canadian market. To make a quick comparison, the Canadian real estate market is worth around 27 billion US dollars. If you multiply that number by 92, you’ll get roughly 2,53 trillion US dollars or the worth of the US real estate market. 

The difference in numbers is staggering, but it doesn’t only represent the amount of money going around in the US market; it also translates into more opportunities for investors. Because of how large the US market is, you can find property deals that you won’t be able to find anywhere in the world (including in Canada). 

For example, the average house in Canada will cost you around $487,540 (or CA$646,134), with the average rent (depending on the region) being between $1200 and $2000. In the US, you can find properties that are half the cost of an average Canadian house and can generate the same or more money in rent per month. We’ll discuss that more later in the article and give you some examples, but for now, let’s get back to DSCR loans.

DSCR loans are one of the most popular financing options for US real estate investors from Canada (due to how flexible and attainable they are. So, whether you’re just starting in the real estate game or are a veteran real estate investor from Canada looking to diversify your portfolio with US property, DSCR loans might just be the thing for you. 

DSCR Loan Canada: Main Things to Know 

DSCR loans are a standard financing option that aims to help foreign and domestic investors buy rental properties in the US. They can’t be used to purchase a primary residence (i.e., DSCR loans are investor-only loans). Now, before we explain how you can get a DSCR loan as a foreigner and the main requirements for it, let’s first briefly discuss some particulars about these types of loans to ensure we’re all on the same page.

What Is a DSCR Loan?

Debt service coverage ratio or DSCR loans are a type of non-qualified investment loan widely available in the US. These loans are only for investors looking for financing to help them purchase a rental property in the US. Unlike other loans that focus on the borrower’s income, credit score, or job history, DSCR loan lenders mainly focus on the DSCR score to approve a specific loan application.  

We can help you get the best deals on DSCR loans.

What Is a DSCR Score?

DSCR score is a metric that aims to measure the financial health of a particular rental property. Most DSCR loan lenders require a property to have a DSCR score of at least one before approving a loan application. This score shows the lenders that a particular rental property can generate enough income to cover the loan payments. 

Some lenders will ask for a score of 1,25 to mitigate the risk further. This higher score shows that a property is able to generate additional income, apart from covering loan payments, allowing the investor to set enough money aside to cover various expenses involved in managing a rental property (e.g., property management, maintenance, repairs, etc.)

However, there are also lenders that will approve a loan for a property that has a DSCR score lower than 1, but they will more than likely ask for a higher down payment. 

How to Calculate DSCR Ratio?

There are two main ways to calculate the DSCR score, with the more popular being to divide the Net Operating Income (NOI) with the Debt Service. The other way to calculate DSCR is to use the Gross Income (GI), instead of NOI and divide that with the Debt Service to get a DSCR score. The one that uses NOI is considered to be a more accurate way of measuring DSCR scores.

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Four Main Requirements for DSCR Loan as a Canadian

Here are the main requirements for taking out a DSCR loan as a Canadian citizen. 

1. DSCR Loan Canada: Score of at Least 1

Most lenders will require a minimum DSCR score of 1. This score shows that the property you’re interested in has enough rental potential to cover the mortgage payments. However, it’s important to note that the higher the DSCR score is, the more likely you’ll be able to get a better loan deal (in terms of required down payment and interest rate). A higher DSCR score means less risk for the lender. Additionally, a property with a high DSCR score can also generate enough income to cover various expenses involved in renting out a property (apart from covering the monthly mortgage debt payments). 

So, ideally, when looking at properties to purchase, you should focus on those with a score of at least 1,25. This score will (in most cases) allow you to gain equity in the property each month (with every rent payment) without having to invest any of your own money to cover additional expenses (property management, repairs, maintenance, HOA fees, and similar). And there’s always a chance there’ll be some money left over that you can put into your bank account. Remember, the higher the DSCR score is, the more money you’ll be able to pocket each month. 

2. DSCR Loan Canada: Down Payment Between 20-25%

Because DSCR loans are non-qualified and are not regulated by the US government to ensure that the borrower can pay the mortgage, they come with higher-than-usual down payment requirements. In most cases, the downpayment for a DSCR loan will be around 20-25% of the property’s value. The down payment is not set and can vary with each case. Some lenders might go for a lower down payment if the deal you’re presenting has good numbers (high DSCR score or good rental potential, etc.) or if you have a high US credit score, among other things.

3. DSCR Loan Canada: Interest Rates

DSCR loan interest rates are usually slightly higher than other US mortgage loans available to Canadians. The exact interest rate is not fixed and can depend on several factors, including:

• US credit score — You don’t need to have one to get a DSCR loan, but if you do, you’ll probably get a more favorable interest rate.
•  The type of property you wish to purchase — Most common types of rental properties include commercial buildings, single or multi-family homes, condominiums, etc.
• Your real estate experience — Veteran real estate investors with diverse portfolios usually get better interest rates for DSCR loans, even if they are Canadian citizens.
• Specific lender — Apart from a DSCR score, different lenders will have different ways and metrics to determine the DSCR loan interest rates for Canadians. 

4. DSCR Loan Canada: Valid Visa and Passport

Whether you’re looking to permanently move to the US from Canada or are looking to purchase a rental property in the US via a DSCR loan, to do that, you’ll need to have a valid Canadian passport and a US Visa. You can get a Canadian passport in around 20 business days, so that shouldn’t be a big issue. And luckily for you, there are a lot of US visas available for Canadians, and they are also not that difficult to get. Some of them are:

• H-1B Visa – Gives Canadians legal persimmon to work in the US (usually for a period of up to 3 years). The most common way to get it is through an H1B Visa Lottery, and later you can even think about buying a house on H1B visa.
• TN Visa – A Visa agreement between Canada and the US that is a part of the NAFTA (North American Free Trade Agreement). This type of visa allows people of certain professions to move and work in the US.
• E-1/E-2 Visa – These types of visas allow Canadians to invest in various US markets (e.g., real estate, US stock market, etc.)
• O-1 Visa – This type of visa is reserved for Canadians who have extraordinary talent in certain areas (including science, art, sport, and more). It allows them to move and work in the US for a period of at least three years.

DSCR loan Canada: Pros and Cons

Like any other type of mortgage, DSCR loans have specific pros and cons. They are:

Main Advantages of Getting a DSCR Loan as a Canadian

The main pros of getting a DSCR loan as a Canadian citizen include:

• It’s much easier to get than other types of investment mortgage loans in the US.
• The main thing that can qualify you for a DSCR loan is the DSCR score or the rental potential of the property you’re interested in.
• You don’t need to have W2s or a job history in the US.
• With a DSCR loan, you can spread out your investment and purchase multiple properties at the same time.
• Most lenders won’t require verification of your personal income.

Downsides of Getting a DSCR Loan as a Canadian

The main cons of DSCR loans for Canadians include the following:

• A relatively high down payment of around 20-25% of the property’s value
• Higher interest rates when compared to other types of mortgage loans
• DSCR loans are investor-only loans, meaning they can only be used to purchase rental property. 
• DSCR loans come with rather strict prepayment fines. 

DSCR Loan Canada: Real-Life Example

Meet Graham, an investor from Canada with a particular interest in the US real estate market. He spent a lot of time studying and comparing the real estate numbers in both Canada and the US and has concluded that they are much better in the States. That is, he can make more money investing in the US real estate market than he ever could by doing the same in Canada. 

With some more research, Graham was able to find an ideal property that perfectly fits with his goals as an investor. But, there was only one major problem left to solve — he didn’t have enough cash to buy the property, and because he’s not a US national with a US credit score, he doesn’t qualify for a conventional US mortgage. So what did Graham do? 

Well, he started looking into different financing options available to Canadians in the US and found out about DSCR loans, the most common type of loan for real estate investors who want to purchase rental property in the US. He found that to get a DSCR loan, you don’t need to actually be a US citizen or even a US resident. That piqued his interest, and he ended up doing the following:

• He booked a call with a US mortgage lender, had several meetings, and decided to apply for a DSCR loan.
• After the lender was satisfied with the property’s DSCR score (i.e., rental potential), Graham’s loan was approved.
• Graham got the keys to the property, and his first tenants moved in a month later.

Thanks to how flexible and easy to get DSCR loans are, Graham was able to finance his property and start living his real estate investment goals in record time. 

If you need help on your US real estate journey, don’t hesitate to book a free call and see what NRI can do for you.

Why do Canadians Invest in US Real Estate?

The main reason why Canadians buy rental property in the US is because the numbers are far better, and there are more promising opportunities in the US than there are in Canada. And, when speaking about numbers, we should remind you that the Canadian real estate market is worth around 27 billion dollars. On the other hand, the entire US real estate market is estimated at 2,53 trillion dollars (92 times larger than the Canadian real estate market).

Another reason why the US real estate market is popular with Canadians is that the “entrance fee” is far lower in the US, and the US real estate market also provides opportunities to new inventors who might not have piles of money lying around. There are a lot of different places in the US where you can find properties for under 300k that can generate more than decent passive income or equity in the property (if you get a DSCR loan). Remember that, with a DSCR loan, you only need a property with a good DSCR score and enough cash to cover the down payment (usually 20-25% of the property’s value, but it can be lower under the right circumstances).

DSCR Loan Canada Example: Investing in Milwaukee

To give you an overview of investment opportunities that the US real estate market provides, let’s take a brief look at the relatively small and quaint city of Milwaukee. The cost of an average house is about $185,000. The average rent for a 2000-square-foot property (185 square meters) is around $1,900 per month. 

To buy an average property with a DSCR loan as a Canadian, you should expect to have enough cash to cover the down payment of around 20-25%, which in the case of investing in Milwaukee and on the high-end of that range (25%) would be around $46,000. And the best part is — your loan payments will be paid off by your tenants and you’ll continue to earn more equity in the property, without having to spend any of your own money. With these numbers, you can expect a full return on your investment in just around 10 years (which is really good when it comes to real estate investing).. 

5 Top States Where Canadians Buy Real Estate in the US

According to the 2023 foreign statistics about foreign investment in the US, these are the top 5 states for Canadian buyers:

1. The state of Florida — 55% of all Canadian investors bought property in Florida, in 2023.
2. The state of Arizona — 14% of all Canadian investors purchased property in Arizona in 2023.
3. The state of California — 4% of all Canadian investors purchased property in Arizona in 2023.
4. The state of Louisiana — 4% of all Canadian investors purchased property in Arizona in 2023.
5. The state of Montana —  4% of all Canadian investors purchased property in Arizona in 2023.

FAQ

Can you get a DSCR loan in Canada?

No, DSCR loans are not available in Canada. However, they are widely available to Canadian citizens who want to invest in US real estate.

Can Canadian citizens get a DSCR loan in the US?

Yes, Canadian citizens can get a DSCR loan in the US. Just note that DSCR loans are specifically for investors and can only be used to purchase rental property (commercial or housing).