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DSCR Loans for Canadians: Complete Guide to Rental Income Mortgages

Learn how DSCR (Debt Service Coverage Ratio) loans work, what affects your rate, LTV requirements, and how Canadian investors qualify without providing personal income documentation.

What is a DSCR Loan?

A DSCR (Debt Service Coverage Ratio) loan is a mortgage product that qualifies borrowers based on the property's rental income, not the borrower's personal income. This makes DSCR loans ideal for Canadian real estate investors who don't want to provide Canadian tax returns, pay stubs, or employment verification to U.S. lenders.

How DSCR Works: The Formula

DSCR Formula

DSCR = Monthly Rental Income ÷ Monthly Mortgage Payment (PITI)

PITI includes:

  • Principal (loan repayment)
  • Interest (loan cost)
  • Taxes (property taxes)
  • Insurance (homeowners + flood if required)

DSCR Ratio Examples

Example 1: DSCR = 1.25 (Strong)

• Monthly Rent: $2,500
• Monthly PITI: $2,000
• DSCR: $2,500 ÷ $2,000 = 1.25

Property generates 25% more income than needed to cover mortgage. The top pricing tier.

Example 2: DSCR = 1.0 (Break-Even)

• Monthly Rent: $2,000
• Monthly PITI: $2,000
• DSCR: $2,000 ÷ $2,000 = 1.0

Property exactly covers its mortgage. Standard rates.

Example 3: DSCR = 0.85 (Negative Cash Flow)

• Monthly Rent: $1,700
• Monthly PITI: $2,000
• DSCR: $1,700 ÷ $2,000 = 0.85

Property generates 85% of needed income. Borrower must cover $300/month shortfall. Higher rates, larger down payment required.

DSCR Requirements by Ratio

DSCR RatioMin Down PaymentRate ImpactApproval
1.25+20%Top pricing tierEasy
1.15-1.2420-25%Good ratesStandard
1.0-1.1425%Standard ratesStandard
0.90-0.9930%Higher ratesHarder
0.75-0.8935-40%Highest ratesLimited lenders

What Affects Your DSCR Loan Rate?

1. DSCR Ratio (Most Important)

Higher DSCR = lower rate. A property with 1.30 DSCR will price significantly more favorably than 1.05 DSCR, even with the same borrower profile.

  • 1.25+: Best pricing tier
  • 1.0-1.24: Standard pricing
  • Below 1.0: Rate increases 0.50-1.50% depending on ratio

2. Loan-to-Value (LTV)

Lower LTV (higher down payment) = lower rate:

  • 75% LTV (25% down): Standard pricing
  • 70% LTV (30% down): Rate reduction ~0.25%
  • 65% LTV (35% down): Rate reduction ~0.50%
  • 80% LTV (20% down): Rate increase ~0.25-0.50%

3. Credit Score

DSCR loans still require credit verification, though not income verification:

  • 740+: Top pricing tier
  • 700-739: Standard rates
  • 680-699: Rate increase ~0.25%
  • 660-679: Rate increase ~0.50%
  • 640-659: Rate increase ~0.75-1.0%

4. Property Type

  • Single-family detached: Top pricing tier
  • Townhouse/condo: Rate increase ~0.125-0.25%
  • 2-4 unit multifamily: Rate increase ~0.25-0.50%
  • Short-term rental (Airbnb): Rate increase ~0.50-1.0%

5. Loan Amount

  • $150K-$1M: Standard pricing
  • $1M-$2M: May reach more favorable pricing (jumbo efficiency)
  • Under $150K: Rate increase ~0.25-0.50% (small loan surcharge)

6. Reserves

More cash reserves after closing = lower rate:

  • 12+ months PITI: Standard pricing
  • 18+ months PITI: Rate reduction ~0.125%
  • 6-11 months PITI: Rate increase ~0.25%

LTV Bands & Down Payment

LTVDown PaymentMin DSCRMin Credit
80%20%1.25720
75%25%1.15700
70%30%1.0680
65%35%0.90660

How Rental Income is Calculated

Long-Term Rentals (12+ month leases)

  • Existing Lease: Use actual lease amount (100% of rent)
  • No Lease: Appraisal Form 1007 (rent schedule) determines market rent
  • Multiple Units: Sum of all unit rents

Short-Term Rentals (Airbnb, VRBO)

  • Existing STR: Use 75% of trailing 12-month average income
  • New STR: Use 75% of appraisal-estimated STR income
  • Higher DSCR Required: Typically 1.15-1.25 minimum
  • More Documentation: AirDNA report, comparable STR income data

Required Documentation

DSCR loans require no personal income verification, but still need:

Identity & Credit

  • Valid passport
  • ITIN or SSN
  • Foreign credit report (Canadian Equifax/TransUnion)

Assets & Reserves

  • Last 2 months bank statements (down payment + reserves)
  • Proof of funds for down payment
  • 12+ months PITI in reserves after closing

Property & Income

  • Purchase contract
  • Appraisal with rent schedule (Form 1007)
  • Existing lease (if property already rented)
  • HOA documents (if condo/townhouse)
  • Homeowners insurance quote

DSCR vs. Foreign National Mortgage

FeatureDSCR LoanForeign National
Income VerificationNone requiredTax returns, pay stubs
QualificationProperty cash flowPersonal income
Min Down Payment20-25%25-30%
Best ForInvestment propertiesPrimary/second homes
Approval SpeedFaster (less docs)Standard

Common DSCR Mistakes

  • Overestimating rent: Use conservative rent estimates, not optimistic projections
  • Forgetting HOA fees: HOA fees don't add to PITI but reduce net cash flow
  • Ignoring vacancy: Lenders assume 100% occupancy, but you should budget for 5-10% vacancy
  • Insufficient reserves: Need 12+ months PITI AFTER down payment and closing costs
  • Wrong property type: Short-term rentals require higher DSCR (1.15-1.25 vs. 1.0)

Ready to Finance Your Rental Property?

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