Many real estate investors in Canada and the United States face a common hurdle: qualifying for mortgages based on traditional income and debt-to-income ratios. However, alternative pathways allow investors to leverage the cash flow of their properties to secure financing. This article explores the concepts of the Debt Coverage Ratio (DCR) in Canada and the Debt Service Coverage Ratio (DSCR) in the US and how they can help investors expand their portfolios by focusing on property-based lending rather than relying solely on personal income. The information in this article comes from a podcast that aims to educate investors about different financing options in the US and Canada.
Traditional Lending vs. Property-Based Lending
Traditionally, lenders in both Canada and the US assess mortgage applications based on an individual’s income, existing debts, and the number of properties owned. This approach can limit investors who have strong cash-flowing properties but may not have a high personal income. Many investors hit traditional financing limits before discovering these alternatives. However, some lenders offer programs that allow investors to qualify based on the rental income generated by the property itself. These programs utilize the DCR in Canada and the DSCR in the US.
Understanding DCR and DSCR
Debt Coverage Ratio (DCR) and Debt Service Coverage Ratio (DSCR) are essentially the same concept, with the former used in Canada and the latter in the US. These ratios allow investors to qualify for a mortgage based on whether the property’s Cash Flow is sufficient to cover the mortgage payments. The loan can be approved if the property’s income covers the mortgage at a specific loan-to-value (LTV), even if the investor’s personal income does not meet traditional requirements. These loans are often considered “business purpose” loans in the US.
Wondering whether your rental property’s cash flow meets the DCR or DSCR threshold for approval? Book a free strategy call with LendCity and we’ll run a quick analysis using your property’s actual numbers.
Key Differences Between Canada and the US
While DCR and DSCR serve the same purpose, there are important differences in how they are applied in Canada and the US:
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Stress Tests: In Canada, residential lenders apply a stress test, requiring borrowers to qualify at the higher of their contract rate plus 2% or the 5.25% minimum qualifying rate. This makes qualifying for mortgages more difficult. In the US, there is no such stress test.
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Loan-to-Value (LTV): In Canada, getting up to 80% LTV on a rental property purchase or refinance is generally more straightforward. In the US, LTVs usually go up to 75% on purchases and 65% on cash-out refinances. However, some US lenders may go to 75% on a refinance once US credit has been established.
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Interest-Only Mortgages: The US offers interest-only mortgages, which can be factored into the DSCR calculation, potentially allowing a property to qualify even if it doesn’t have positive cash flow. This is not typically an option in Canada.
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Mixed-Use Properties: In Canada, mixed-use properties are generally acceptable for DCR programs. In the US, mixed-use properties can be a challenge for DSCR programs, although there can be exceptions.
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Cash Flow Analysis: When calculating DCR, Canadian lenders may not use 100% of the rental income and may factor in expenses such as vacancy, property repairs, and property management. In the US, for the DSCR calculation, lenders may exclude these expenses and focus on property taxes, condo or homeowner association fees, and annual insurance.
How the Programs Work
The process generally begins with a potential investment property that an investor is considering. The lender needs the following information to run the numbers and determine if the property qualifies for a mortgage:
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Property Address: The specific location of the property is necessary.
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Rental Income: The property’s income is essential for the DCR/DSCR calculation.
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Property Taxes: This recurring expense must be factored into the cash flow analysis.
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Condo or Homeowners Association Fees: If the property has these fees, they must be included in the analysis.
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Annual Insurance: The cost of insuring the property must be considered.
Once this information is gathered, a cash flow analysis can be performed to see if the property meets the required ratio for financing.
Use our DSCR Loan Calculator to quickly check whether your property’s cash flow meets the debt service coverage ratio threshold for approval.
Canada’s stress test and the US interest-only option create very different qualification paths — book a free strategy call with us and we’ll help you understand which approach works best for your next property.
Fees and Underwriting Styles
It’s important to note that commercial loans in Canada and DSCR loans in the US come with fees. These fees vary depending on the loan size, complexity, and how quickly the loan needs to close. Also, remember that commercial loans in Canada and DSCR loans in the US have different underwriting styles, and it is important to seek expert Canadian mortgage advice when navigating these differences.
Lending Caps and Strategies for Growth
In the US, lenders may have caps on the number of loans they will fund and may sell the debt, resulting in a change of lender for the investor. In Canada, caps are less common, and investors have options to partner with another lender if necessary. Once an investor is in the program, lending generally becomes unlimited as long as the properties continue to cash flow.
The Importance of Expert Advice
Additional Considerations
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The podcast mentions foreign nationals investing in the US may have different LTV restrictions.
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The Burr method, which involves buying, updating, and refinancing a property, might not be as successful in the US due to lower LTVs on refinances.
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While it is generally more challenging, DCR programs in Canada can be used for single-family homes, although lenders typically prefer two-unit or larger properties.
Conclusion
Using DCR and DSCR programs can be a game-changer for investors interested in development mortgage financing looking to expand their portfolios. By focusing on the cash flow of a property, investors can access financing that might otherwise be unavailable to them based on traditional lending criteria. Navigating these programs requires a good understanding of the differences between Canada and the US, and seeking expert advice can significantly improve an investor’s chances of success. The key is to get educated and explore these opportunities to become a more successful real estate investor.
Frequently Asked Questions
What is the difference between DCR and DSCR?
Can I qualify for a mortgage without using my personal income?
What loan-to-value can I get with a DSCR loan in the US?
Does Canada have a stress test for DCR mortgages?
What information do lenders need to calculate DCR or DSCR?
Are interest-only mortgages available for investment properties?
Can I use DCR or DSCR programs for mixed-use properties?
Is there a limit to how many properties I can finance with these programs?
Does the BRRR strategy work with DSCR loans?
Can I get a DCR mortgage on a single-family home in Canada?
Disclaimer: LendCity Mortgages is a licensed mortgage brokerage, and our team includes experienced real estate investors. While we are qualified to provide mortgage-related guidance, the broader financial, tax, and legal information in this article is provided for educational purposes only and does not constitute financial planning, tax, or legal advice. For matters outside mortgage financing, we recommend consulting a Chartered Professional Accountant (CPA), licensed financial planner, or qualified legal advisor.
Written by
LendCity
Published
December 17, 2025
Reading Time
7 min read
Cash Flow
The money left over after collecting rent and paying all expenses including mortgage, taxes, insurance, maintenance, and property management.
DSCR
Debt Service Coverage Ratio - a metric that compares a property's net operating income to its mortgage payments. A DSCR of 1.25 means the property generates 25% more income than needed to cover the debt. Lenders typically require a minimum DSCR of 1.0 to 1.25 for investment property loans.
DSCR Loan
A loan qualified based on the property's Debt Service Coverage Ratio rather than the borrower's personal income, popular for US investment properties.
Equity
The difference between a property's current market value and the remaining mortgage balance. If your home is worth $500,000 and you owe $300,000, you have $200,000 in equity. Equity builds through mortgage payments, appreciation, and property improvements.
Interest Rate
The cost of borrowing money, expressed as a percentage. It determines how much you pay on top of the principal borrowed.
LTV
Loan-to-Value ratio - the mortgage amount expressed as a percentage of the property's appraised value or purchase price (whichever is lower). An 80% LTV means you're borrowing 80% and putting 20% down. Lower LTV generally means better rates and terms.
Leverage
Using borrowed money (mortgage) to control a larger asset, amplifying both potential returns and risks on your investment.
Refinance
Replacing an existing mortgage with a new one, typically to access equity, get a better rate, or change terms. Investors commonly refinance to pull out capital for purchasing additional properties (cash-out refinance) while retaining ownership of the original property.
Underwriting
The process lenders use to evaluate the risk of a mortgage application, including reviewing credit, income, assets, and property value to determine loan approval.
Rent Roll
A document listing all rental units in a property, including tenant names, lease terms, and rent amounts. Essential for verifying income during due diligence.
Mortgage Stress Test
A federal requirement to qualify at the higher of your contract rate +2% or the benchmark rate (around 5.25%). For investors, rental income can be used to offset this calculation, though lenders typically only count 50-80% of expected rent.
Coverage Ratio
A measure of a property's ability to cover its debt payments, typically referring to DSCR. Commercial lenders often require a minimum of 1.2, meaning the property's net operating income exceeds debt payments by at least 20%.
Commercial Lending
Financing for commercial real estate or business purposes, typically qualified based on property income (NOI) rather than personal income. Includes mortgages for multifamily buildings (5+ units), retail, office, and industrial properties.
Single Family
A detached home designed for one household, the most common property type for beginner real estate investors.
Vacancy Rate
The percentage of rental units that are unoccupied over a given period. A critical factor in cash flow analysis, typically estimated at 4-8% for conservative projections.
Property Management
The operation, control, and oversight of real estate by a third party. Property managers handle tenant screening, rent collection, maintenance, and day-to-day operations.
Rental Income
Revenue generated from tenants paying rent on an investment property. Gross rental income is the total collected before expenses, while net rental income subtracts operating costs to show actual profitability.
Condominium
A type of property ownership where an individual owns a specific unit within a larger building or complex, sharing ownership of common areas with other unit owners. Condos offer lower entry prices but come with monthly fees and potential rental restrictions that affect investment returns.
Mixed-Use Property
A building that combines residential and commercial uses, such as retail on the ground floor with apartments above. Mixed-use properties can diversify income streams and may qualify for commercial financing terms.
Debt-to-Income Ratio
A lending metric that compares a borrower's total monthly debt payments to their gross monthly income. Lenders use DTI to assess borrowing capacity, with most requiring ratios below 44% for mortgage approval.
Hover over terms to see definitions, or visit our glossary for the full list.