Scott Dillingham: 00:22

Welcome to the Wisdom Lifestyle Money Show. I'm your host, Scott Dillingham. Today, I'm going to go over how you can easily qualify for any purchase. Primarily, today's podcast will be geared towards Canada and USA Investing. There's many different programs that support this, and I'm gonna go over all the details right now.

Scott Dillingham: 00:44

So when you're qualifying for a mortgage, traditionally the banks and lenders will wanna see your income. They wanna see your debts, and how many properties that you own before they decide to move forward. So they wanna make sure your debt to income ratios are below the minimum. Right? And many lenders have caps on the amount of properties you own, whether that's 4 or 5, sometimes 10.

Scott Dillingham: 01:15

And I am mainly referring to lenders in Canada that have caps because in the states they're very more lenient. They're just so much more lenient. So the thing is is we get so many calls from real estate investors asking us for equity lending because they wanna qualify for lending based on the property and not their income. Okay? So if you go to the wrong mortgage broker that doesn't quite understand how investors work, you're ending up with a private mortgage, because that's what traditionally they offer.

Scott Dillingham: 01:48

Now equity lenders are generally private lenders with rates much, much higher. And there's also broker and lending fees. Okay? And so many people think that this is the option. They think this is what they need to do because their bank or their lender has not informed them that it is possible that you can qualify with the cash flow of the property, and not necessarily your debt to income ratios.

Scott Dillingham: 02:16

And I see this all the time. Right? I see investors building up their real estate portfolios, and then they wanna retire. Right? And not retire in the sense of not do anything.

Scott Dillingham: 02:26

They just wanna quit their 9 to 5, and they wanna be full time investors, and they wanna grow their portfolios. But the lenders don't support that unless you're using DSCR in the States or DCR in Canada. So DCR stands for debt coverage ratio and DSCR is debt service coverage ratio. Very much the same thing. So I discovered this years ago when I worked at the bank that on the commercial side in the institution, they were getting deals done that we couldn't get on the residential side.

Scott Dillingham: 02:58

And I'm like, what's going on here? Why? And I started on the residential side, and it is very much based on income. But on commercial, they were looking at the property. They were looking at it like a business, and they're saying, does this cover itself at the 80% loan to value mortgage the client is applying for?

Scott Dillingham: 03:19

If so, let's move forward. We're good to go. If it didn't, right, what they would do is they'd scale back the lending and then say, okay, you know what? It actually covers itself at 65% loan to value. Let's move forward.

Scott Dillingham: 03:33

Now in Canada the challenge with the residential side of things and with the residential based lenders even if they offer the commercial product what happens is they still have to factor in a stress test against the mortgage. So the stress test makes qualifying for the mortgage so much harder because you're qualifying at a rate that's at least 2% higher than the rate that you're being given. Potentially more depending on what the interest rates are at. Now in the States, they don't have any type of stress test or anything like that. You qualify, and when you qualify, they even have actually interest only mortgages, which is incredible.

Scott Dillingham: 04:19

And if that's the product you're getting, we literally put the interest only mortgage into the DSCR, and we see if it covers itself. And if it does, you're good. Now there is different LTVs in Canada and the States so I want to make this clear too since we're talking about this. In Canada it's quite easy to get up to 80% loan to value of the purchase or refinance when you're buying a rental property. In the States, those LTVs are completely different.

Scott Dillingham: 04:44

You can get usually up to 75% on a purchase and 65% on a cash out refinance. That's what they call it over there. However, we do have lenders that once you've established the US credit, they will go to 75% also on the refinance in the States. But there's very few lenders that do that. So just know, on the refinancing, it's not as good over there.

Scott Dillingham: 05:07

But But a lot of people are like, oh, I'm gonna do the BRRRR method. I'm gonna update the property, renovate it, and then go to refinance it. It's not as successful in the states because the LTVs for foreign nationals, that's what they call anyone who's not from the states that wants to buy an investment property over there. They don't give you those LTV's that you're looking for. Okay, so you want to be very careful of this.

Scott Dillingham: 05:30

But, back to the main topic here. So, with the debt coverage ratio program, or the DSCR program in the States, you can qualify based on the rental property's income. Debt ratios do not matter. And in most cases, any property is legible for this program. There's all there's caveats to this.

Scott Dillingham: 05:51

Right? I mean, there are some exceptions, right, for this program if it's retail stores. Right? That might challenge a US lender because the debt service coverage ratio, it's not usually for mixed use. And I'm I'm saying it with, you know, uncertainty because there are some exceptions to the rule.

Scott Dillingham: 06:13

But the main rule is mixed use properties are a no go for the DSTR program. In Canada, the mixed use properties are absolutely fine. It's just how the programs work. So I just wanna identify the 2, how they're different in each country. So so what happens, because a lot of people, they don't understand that in Canada, you can use the debt coverage ratio program on even a single family house.

Scott Dillingham: 06:39

Now, it's harder. Generally, the lenders wanna see a 2 unit property or larger, but we have done properties that were based on single family. So what happens is when we go the commercial route in Canada, so that's to use the the DCR. In this states, the DSCR is actually considered commercial as well or business purpose. That's what they'll call it over there.

Scott Dillingham: 07:06

But the thing is is you're getting different underwriting styles. So that's why this is different. Now keep in mind, commercial in Canada and the loans in the states, the DSCR loans in the states, they have fees. The fees vary depending on the size of the loan. Right?

Scott Dillingham: 07:24

So the smaller the loan, usually the larger the fee. It also depends on the complexity, the time, like how quickly you wanna close. Right? If if if you're coming in and saying, hey, Scott or team. Right?

Scott Dillingham: 07:38

I want a 30 day closing. That's pretty easy. If you come in and say, hey, I need to close this in a week, that means we have to put other files to the side. So you have to pay for that priority. Right?

Scott Dillingham: 07:49

So the the fees increase if it's a rush like that. Okay? So now caveat, and I touched on it, right, but cash flow matters. So, again, if a property doesn't cash flow, the lenders in Canada are gonna scale back the loan to value. They do in the States as well, but they also have a program where they can just increase your interest rate because it's more risky to them.

Scott Dillingham: 08:15

So some lenders will keep the same loan to values, but they'll just charge you a higher interest rate. So things are a little bit different on each side of the border. But, again, you wanna get the most attractive rate. We're looking for cash flow, so getting the best rates is is absolutely important. But, again, in the states, they do have the interest only products.

Scott Dillingham: 08:34

So if it doesn't cash flow, we can do interest only. Now, traditionally, they offer the 30 year mortgages in the States, just like Canada. But they have a bunch of lenders that have the 40 years. So keep that in mind too, because we can go with the 40, which really, really helps. Now, I wouldn't suggest just go buy a home and move forward.

Scott Dillingham: 08:55

I always suggest that you would speak to an expert on my team, set up a strategy call, the link is in the notes, and then talk to them. If you wanna tap into these programs, whether it's in Canada or the States, we need to sit down, run the numbers, and make sure that this will work perfect and seamlessly for you. And the cool thing with this program is we can run the numbers up front. So that's actually what we could do. We'll have a client suggest to us a property.

Scott Dillingham: 09:23

They give us the address. We need to know the rental income of that property, the property taxes, if there is a condo fee or in the states, a homeowners association fee. Right? We need to know that, and we need to know how much the annual insurance is for the property. Now once we know these things, we can run a cash flow analysis.

Scott Dillingham: 09:48

Now in Canada, for the debt coverage ratio, the lenders often don't use a 100% of the rents. They do factor in expenses such as vacancy, property repairs, property management. In the States when we're running the cash flow calculators they're excluding those. Only the expenses I've mentioned are the expenses they're using. So it's it's even easier under the same program to qualify under the States.

Scott Dillingham: 10:14

Now one other thing worth noting is once you get into these programs, generally the lending becomes unlimited. The lenders will keep lending to you. Now, they could have caps, like for an example, I know in the states, I'll give you an example. 1 of our lenders, they'll fund 15 deals before you need to, either change lenders or literally wait, because in the states they just sell the debt. So you get the mortgage and they sell it.

Scott Dillingham: 10:44

So a couple years later your mortgage statement changes and and your lender changes and you're like, what the heck is this? But it's because they're they're selling the debt. So then once the debt is sold, those loans are off their books so they can re loan to you. So it's really really cool. In Canada generally speaking the only time I've seen caps on the commercial side with a specific lender is if they really were overexposed in a market.

Scott Dillingham: 11:06

And they'll say no we're not going to move forward but then what we do is we'll just partner with another credit union or bank, and we'll continue the portfolio. So it's not really like a a dead end. It may be a dead end with that specific lender, but there's usually options. So I wanted to share this with you guys because so many investors call us that are not aware of this program, and we do a lot of education regarding it. So I wanted you to know.

Scott Dillingham: 11:29

So if this stuck with you, or somebody who this could benefit, please share this episode with them. Our goal and our mission is to help investors. That is what we are all about. And too many investors do not know about these programs. So share the knowledge, share the wealth, and I look forward to seeing you guys on the next episode.