Nearly one in five U.S. mortgage loan applications was denied in 2024. As such, getting approved for financing as a foreign national investor looking to build a U.S. real estate portfolio can seem daunting. It may feel like paying in cash is the only option.
While you can certainly pay cash, there is an alternative available–DSCR loans. This is the ideal financing option for foreign nationals as it bypasses many of the usual requirements for securing an investment mortgage loan in the U.S..
DSCR loans can empower you to find your place in the U.S. real estate market. With any investment and finance-related decision, though, it's essential to weigh the pros and cons, and that’s precisely what this article will help you do.
Short for debt-service-coverage-ratio, a DSCR loan is a type of property loan that is evaluated based on the rental income that a property can produce. DSCR loans are considered non-qualified loans as they require no income verification and do not factor in your personal income when determining eligibility. This loan is particularly beneficial for international investors because it helps them evaluate both risk and potential returns before making investment decisions.
The main difference between DSCR loans and traditional mortgages lies in the eligibility criteria. Traditional mortgages rely on personal income, tax returns, and debt-to-income (DTI) ratios. In contrast, DSCR loans focus on the property’s income potential and DSCR score–the main consideration for lenders is whether the rental income covers loan payments. For foreign nationals, it’s easier to meet DSCR loan qualifications than the eligibility criteria for other qualified mortgage loans.
DSCR loans are most appropriate for rental properties that can be evaluated based on potential income returns. This means if you’re buying property to be a short or long-term rental, it qualifies for a DSCR loan. On the other hand, if you are looking to invest in land development, commercial property, or buying a home to flip it, or as a primary residence, a DSCR loan will not qualify.
Eligibility for a DSCR loan is evaluated through a metric known as the DSCR, which is calculated by dividing your net operating income by your debt service. In other words, the lender wants to make sure that the property generates income after expenses.
To simplify it even more, the figure on top is what’s left over from your rental income after all expenses. The figure on the bottom is the money required to pay the principal amount and the interest on the loan. With this ratio, the lender is able to tell if you have a steady cash flow to cover debt payments.
Your DSCR can vary based on several factors related to both your status and the properties, but the ratio needs to be at least above 1. A ratio of more than 1 means that you would not only be able to cover the debt but also have money left over from the rental income.
Most lenders typically look for a DSCR ratio of at least 1.25 or higher. However, with Waltz, depending on the property type and a few other factors, if you have a ratio above 1, you can still be eligible for loans that range from one hundred thousand to a million U.S. dollars.
Working with Waltz also opens up your investment opportunities in residential property types such as: single-family houses, townhomes, condos, and up to four unit multi-family properties. What’s more, Waltz can also help you research and assess whether a property would be a good investment.
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Compared to traditional mortgage options, DSCR loans also have requirements that make them a more accessible choice for foreign nationals. In this next section, we’ll discuss some of these DSCR loan benefits.
Many foreign nationals get turned away for property loans because of a combination of a lack of U.S. income and credit score. Lenders will determine whether or not you qualify for a DSCR loan primarily based on the income potential of the property you’ve chosen to buy. While your income does play a role in the decision-making process on a DSCR loan, U.S. based income isn’t a must-have to get a DSCR loan with Waltz.
With DSCR loans, you will have a more effortless experience qualifying as you will need less documentation to be eligible. There’s no need to cite credit histories in the U.S. and show credit scores, as the loan is based on the property’s income potential rather than your personal income. The key to this qualification is designating the property under an LLC. So, even if you’re a non-citizen applying for a loan, the loan can be listed under the property’s LLC since the LLC is U.S.-based.
Many real estate investors dream of owning multiple cash-flowing properties to build long-term wealth and financial freedom. DSCR loans are a great way to achieve this goal. There’s no limit on how many DSCR loans you can take, so you can scale your real estate portfolio quickly and efficiently. Also, when you’re using DSCR loans, you’re leveraging capital instead of paying all-cash. By using leverage, you can grow your real estate investments faster, take advantage of market opportunities, and maximize returns while preserving liquidity for future investments or unexpected expenses.
Traditional mortgage application processes in the U.S. can require extensive waiting time and documents that you may not have available in English. With DCSR loans, the application process is much more streamlined as there is less emphasis on your personal finances and income verification.
At Waltz, we specialize in working with foreign nationals, so we take it a step further to make documentation even easier. To verify your identity, we only need your passport. Also, while we won't ask for your U.S. credit score, we still need to understand your financial history. We’ll rely on financial statements, bank statements, and income source information for this. As a result, some investors working with Waltz have received mortgages in under 30 days–faster than the average timeline.
To get a more holistic view of DSCR loans, it’s important that you also understand some of the cons of DSCR loans. These include other loan factors such as interest rates, down payments, prepayment penalties, and cash reserve obligations. In the next section, let’s discuss some of these potential wrinkles that could emerge when qualifying for DSCR loans.
Compared to traditional mortgage loans for U.S. citizens, DSCR investment loans have slightly higher interest rates. While traditional mortgages have lower interest rates, these qualified loans are for people buying a home to live in.
With DSCR loans, there’s usually a fee if you pay off the entire loan early before the agreed timeline. This is known as a pre-payment penalty and is reflected in your term sheet. It means that you need to know in advance whether you plan to sell your investment property shortly after buying it or hold it for the foreseeable future.
To qualify for DSCR loans, you may need cash reserves as a safety net to cover expenses during potential tenant changes. That means you’ll need extra funds available to show the lender that you can cover the mortgage– six months is a general rule of thumb.
If you’ve previously looked into DSCR loans, you may already know that foreign nationals need an LLC or other entity structures to qualify for these loans. Also, the requirement for setting up an LLC is that you have a U.S. bank account. This can be a significant stumbling block for foreign nationals who don’t have an LLC or a U.S. bank account.
Thankfully, you don’t need to worry. Waltz is here to help and provide you with all the credentials you need to qualify. With our Investor Kit, we’ll set you up with a U.S. bank account, LLC, complete with an EIN (Employer Identification Number) and an integrated banking and foreign exchange feature.
DSCR loans offer foreign nationals a unique opportunity to invest in the U.S. real estate market without the need for traditional income verification. However, they come with certain challenges, such as higher interest rates and the need to demonstrate strong property cash flow. It’s important to carefully weigh these factors when considering your investment strategy.
Take the next step toward your real estate investment goals with a DSCR loan.
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