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.
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. 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.
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.
While DCR and DSCR serve the same purpose, there are important differences in how they are applied in Canada and the US:
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:
Once this information is gathered, a cash flow analysis can be performed to see if the property meets the required ratio for financing.
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 advice when navigating these differences.
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.
Many investors are unaware of these programs and may end up with private mortgages with higher rates and fees. It is important to seek expert advice to determine your investment goals’ best strategy and leverage the most beneficial financing options. The podcast suggests investors set up a strategy call with an expert to navigate these programs and analyze if they are a good fit.
Using DCR and DSCR programs can be a game-changer for real estate investors 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.
A DSCR mortgage, or Debt Service Coverage Ratio loan, is a type of investment property financing where approval is based on the property’s rental income covering the mortgage payments, rather than the borrower’s personal income. It’s designed for real estate investors in Canada buying or refinancing rental properties, treating the asset like a business to simplify qualification.
In Canada, a DSCR loan (often called Debt Coverage Ratio or DCR) allows investors to qualify for mortgages on rental properties using the property’s cash flow. Unlike traditional loans, it ignores personal debt-to-income ratios and focuses on whether rents cover debt at 80% loan-to-value, with lenders factoring in a stress test for added stability.
Lenders calculate the DSCR by dividing the property’s net operating income (rental income minus expenses like taxes and insurance) by the annual mortgage payment. A ratio of 1.25 or higher typically qualifies you. In Canada, this means using 80-100% of projected rents after buffers for vacancy and repairs, enabling seamless approval for multi-unit or single-family rentals.
DSCR = Net Operating Income / Annual Debt Service. For a Canadian rental property, estimate gross rents, subtract 10% for vacancy and maintenance, then divide by the full mortgage cost (principal, interest, taxes, insurance). Tools like online DSCR mortgage calculators can run these numbers quickly to check if your deal hits the 1.2-1.25 threshold.
While flexible, DSCR loans in Canada often come with higher interest rates (0.5-1% above conventional), origination fees (1-2%), and a mandatory stress test that qualifies you at elevated rates. They’re also limited to investment properties, and low cash flow can reduce loan-to-value to 65%, making them less ideal for marginal deals.
Not necessarily—qualification is easier for investors since personal income isn’t verified, but you need a 620+ credit score, 20% down, and strong rental projections. In Canada, the stress test adds scrutiny, but properties with solid cash flow (e.g., duplexes) qualify faster than traditional mortgages for self-employed borrowers.
Typically 25% down for purchases in Canada, though some programs allow 20% with excellent credit and high DSCR ratios. For refinances, you can access up to 80% loan-to-value based on appraised value and cash flow, making it suitable for strategies like buy-and-hold rentals.
Current DSCR mortgage rates in Canada hover around 5-7%, depending on loan size and property type—slightly higher than standard mortgages due to the business-purpose classification. Rates are fixed for 5-10 years, and tools like DSCR mortgage calculators help compare options to ensure your rental income covers payments comfortably.
Real estate investors with good credit (620+), a down payment, and properties generating verifiable rental income qualify easily. Self-employed or retiring Canadians benefit most, as no tax returns are needed—just proof of rents covering debt. Mixed-use and multi-unit properties are often eligible, unlike some U.S. restrictions.
DSCR loans in Canada can close in 30-45 days for standard deals, or as quick as 15-20 days for rushes with extra fees. Pre-approvals based on property details speed things up, making them ideal for competitive markets where investors need to act on rental opportunities without income delays.