CMHC changes rental income rule to help homeowners

As home prices have risen in bigger cities in Canada, the Canada Mortgage and Housing Corp. will consider up to 100% of gross rental income, instead of the current 50%. This can be great news to potential home owners who are seeking to buy a home with a rental suite.

 

This change can facilitate potential home owners obtain a mortgage, as your lender can take into consideration the rental income your property will have. Current home owners will also be benefited as they look to renovate or buy another home.

 

Canadian Mortgage Trends says the following seem to be the requirements to use 100% of rental suite income:

 

• The property must be owner-occupied.

 

• The property being insured can have only two units (i.e., a duplex or a single home with a legal secondary suite).

 

• Rental income cannot be used if the suite is “illegal/non-conforming” but “legal non-conforming” is okay. (Non-conforming means that the suite was grandfathered in before zoning/regulations restricted such units. You can check with the city to confirm if a suite is legal.)

 

• The suite must be self-contained with its own entrance.

 

• Property taxes and heat must be factored into the borrower’s debt ratios (which is currently not the case when using rent from legal secondary suites).

 

• For existing units, there must be two-year history of rental income from the suite. The maximum rental income allowed for qualification is a two-year average of the unit’s rent.

 

• For new units, a market rent appraisal can be accepted if an appropriate vacancy rate has been applied to the estimated rental income.

 

• Mortgage applicants must “demonstrate a strong history of managing credit” with a minimum credit score of 680.