5 Steps to Apply for a DSCR Loan as a Foreign National

As of August 2024, the U.S. real estate market is worth nearly $50 trillion, and continues to rise over time. In fact, that number has doubled in just a decade, increasing 120% from 22.7 trillion in 2014. 

Needless to say, U.S. real estate is desired by investors from around the world. With the creation of debt-service-coverage-ratio (DSCR) loans, acquiring property in the U.S. has become more streamlined for international investors.

As you read this article, you’ll know what to anticipate before getting started and exactly what to do when you feel ready to start the process. Let’s dive in!

Key takeaways:

• Think through your decision to go with a DSCR loan: Before applying for a DSCR loan, you need to ask yourself big questions and understand potential challenges. Once you do that, Waltz is ready to help you successfully close a deal.
• Find a lender who knows how to work with foreign nationals: DSCR loans make it easier for foreigners to obtain financing for rental properties, however not all lenders understand the intricacies of working with people living abroad.
  
  
• Simplify the application process: DSCR loan applications for foreign nationals require fewer documents than traditional loans. By following five simple steps, the loan application process can happen faster than with traditional mortgages.

Things to consider before applying for a DSCR loan

Before applying for a DSCR loan, you need to ask yourself a few questions:

1.  Is a DSCR loan the right choice for you? It's essential to evaluate if a DSCR loan aligns with your financial goals, property type, and long-term plans.

Learn more: The Ultimate Guide to DSCR Loans for Foreign Nationals.

2. How do you know if a property qualifies for a DSCR Loan? A property typically qualifies for a DSCR loan based on its income-generating potential, with lenders focusing on whether the rent can cover the mortgage.

3. What’s your DSCR score? Understanding your debt-service-coverage-ratio is crucial because it determines your ability to repay the loan based on the property's income and is what lenders use in large part to qualify you for the loan.

4. Can you improve your DSCR? Consider whether you can take steps to increase your DSCR, such as increasing rental income or reducing operating costs, to improve loan approval chances.

5. How do you find a great DSCR lender? Research lenders who specialize in DSCR loans and have experience working with foreign nationals. Compare their terms, interest rates, and reputation, and check their experience with similar property types.

Common challenges in the DSCR loan application process for foreign nationals

The steps to apply for a DSCR loan can seem challenging, but the right guidance makes it easier. Before starting, it’s important to understand some of the common challenges you may face in the DSCR loan application process as a foreigner.

• Lengthy documentation:  It can feel like the list of needed documents is never-ending. Some lenders may want U.S. credit and sources of funds, for example.
  
  
• International banking hurdles: International banking and administrative issues can delay transactions and complicate the investment process.
  
  
• Limited lender options for foreign nationals:  You can feel stuck if a lender asks for U.S. documentation you don’t have or the process has delays. Finding the right lender is crucial to getting your deal closed.

See how these international investors overcame challenges by working with Waltz.

5 Steps to apply for DSCR loans 

You’ve researched DSCR loans, found a property to invest in, and started looking at possible lenders. Now, you can finally begin the actual application process. Let’s go through the five steps of applying for a DSCR loan as a foreign national.

Step 1: Get a quote from a foreign national-friendly lender

Don’t be afraid to get quotes from lenders, then compare your options. Some lenders may offer DSCR loans, but you may run into issues if they lack experience working with investors from around the world. You need to search for a lender who is familiar with the unique requirements of foreign nationals with DSCR loans. 

While it’s also common for lenders to ask for a U.S. credit score and U.S. income records, Waltz doesn't require you to have U.S. income records or a U.S. credit score. Waltz can even use a foreign passport as your form of identification. 

Step 2: Onboarding and loan application

When you’re ready to apply for a DSCR loan, you will need to gather essential information. That includes your financial history or U.S. credit score, a passport, social security number or EIN, and proof of income. These can be documents like financial statements, bank statements, or income source information. You’ll also need to be able to show proof of a U.S. bank account and an LLC to obtain this loan.

Step 3: Set up an LLC, obtain an EIN, and get a U.S. bank account

You may notice that step three occurs simultaneously with step two. This is because you’ll need to set up an LLC (Limited Liability Company), EIN, and a U.S. bank account in order to apply for the loan.

Don’t have any of this, but want to move quickly on the property you want to buy? With Waltz’s Investor Kit, you can get all of the above in just minutes!

The importance of an LLC for DSCR loans

An LLC is a legal entity that combines the benefits of a corporation and a partnership. Here are some ways that LLCs can help you with real estate investment:

• Personal liability: LLCs can limit your personal liability for any debts or lawsuits related to your properties. If someone is injured on your property, they can only sue the LLC.
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• Tax reasons: LLCs are considered pass-through entities. That means they’re immune to the double taxation that corporations face, where the business income is taxed at the corporate level and then again at the personal level. An LLC can also deduct various expenses, including mortgage interest, property taxes, depreciation, repairs, maintenance, and management fees. Always be sure to consult with legal and tax professionals regarding LLC formation and taxation. 
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• Flexibility and simplicity: Compared to other entities, forming and maintaining an LLC requires less paperwork and fees. An LLC can also choose how it wants to be taxed by the IRS. 
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• Privacy and anonymity: When you buy a property under your own name, your name becomes public record, and you open yourself to spam, identity theft, or harassment from potential creditors or litigants. When you buy it under an LLC, only the name of the LLC will be public record. 

Why you need a U.S. bank account

Like an LLC, a U.S. bank account can significantly help foreign nationals when investing in U.S. real estate. An EIN is crucial to being able to open a bank account–both are included as part of the Investor Kit. Here are a few ways that they can help before and after the application process:

• Transactional convenience: Having a U.S. bank account simplifies the management of financial transactions, including depositing rental income to handling property-related expenses like management fees, property taxes, and maintenance costs.
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• Currency conversion: For foreign nationals, a U.S. bank account simplifies the conversion and management of funds. It also minimizes currency conversion fees and shields investors from exchange rate fluctuations.
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• Mortgage payments: Mortgage payments may require a U.S. bank account, depending on the lender.
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• Escrow and closing costs: During the closing of the property purchase, a U.S. bank account is necessary for depositing funds related to the down payment, closing costs, and escrow. 
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• Taxation and reporting: A U.S. bank account helps with tax compliance and reporting requirements, especially if it is dedicated to the specific LLC for real estate. This includes paying property taxes, reporting rent income, and reducing withholding tax on rental income.

Step 4: Track progress

With the Waltz platform, you can easily track your loan’s progress every step of the way. From key milestones like the appraisal to reminders for necessary insurance, Waltz keeps you informed and in control. Plus, it provides real-time updates on your loan status and alerts you if any additional documents are needed to move forward and close.
Pro tip: don’t forget to review your term sheet!

After your paperwork has been submitted and approved, you will then be sent a term sheet. A term sheet is a breakdown of your DSCR loan and outlines the main terms and conditions of a potential investment. Term sheets can be intimidating, but you should ensure you completely understand everything discussed within. Some of the things within the term sheet include:

• Borrower information: The term sheet will begin with general info about your LLC and personal info such as your residency status, loan type, and FICO credit score. Waltz doesn’t require a U.S. credit score.
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• Property details: This includes key info such as the property address, the type of property (single-family, condo, townhouse, or multi-family), and its sale price (or current estimated market value). It also outlines the lease type and expected monthly rent. 
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• Expected annual costs: This will help you to budget expected costs over the course of a year. These can also be fixed expenses like property taxes, insurance, and Homeowners Association (HOA) fees if they apply. These will factor into the amount of money needed in your escrow. The first year of insurance is also typically paid before closing, so keep that money in mind.
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• Loan details: The most extensive part of the term sheet. This includes everything from interest rates to loan terms as individual line items. Crucial components include the loan amount, interest rate, loan term (length of time to repay the loan, 30 years is most common), LTV ratio, DSCR, amortization (how the loan is gradually paid off), and pre-payment penalty (a fee charged if you pay off the entire loan early tied to a specific timeline).
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• Monthly payment: Made up of four components: principal, interest, taxes, and insurance.
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• One-time expenses: Down payment, loan origination (a percentage of the loan amount that covers the lender’s costs for processing and underwriting the loan), Legal, admin, and closing costs (fees for legal services, paperwork, and coordination of loan approval).

Step 5: Secure financing and close the deal

The final step in your loan process is an exciting one! Once your loan is approved, you’ll review the HUD (Housing and Urban Development) statement, which outlines all the costs associated with the transaction. Before you officially close, Waltz enables digital closings whenever possible, so you can skip the old-fashioned processes of coming in person for the closing from half-way around the world. After confirming the details, you'll proceed to the closing, and that’s when you officially become a U.S. property investor—congratulations!

Get a DSCR loan as a foreign national

Investing in real estate as a foreign national should be about more than filling in paperwork and following a bureaucratic maze. It’s hard enough to make the right decisions about what property to invest in. Let us Waltz you through the complex parts in just five steps.. 

Apply for a DSCR loan today!

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