Many buyers are looking for creative ways to qualify for a mortgage. One thing some people don’t realize is that rental income can help during the mortgage process.
Whether you’re purchasing a home with a legal suite, buying a duplex, or investing in a rental property. Rental income can significantly improve your mortgage approval odds when structured properly.
Rental income is money received from tenants who occupy part or all of a property you own. In the mortgage process, this income can be used to offset your housing costs or increase your total qualifying income, depending on the lender and property type.
Common scenarios include:
Canadian lenders don’t typically count 100% of rental income, but they recognize it in several ways:
This is the most common approach when it comes to rental suites within an owner-occupied home.
Instead of adding rental income to your earnings, lenders reduce your housing expenses (mortgage payment, taxes, heating, and condo fees if applicable) by a portion of the rental income.
This lowers your debt-service ratios, which are critical for approval.
Future reading: Understanding your debt-service ratio for mortgages.
Some lenders will allow a portion of rental income to be added directly to your gross income.
This can be helpful for:
The percentage used depends on the property type, the credit profile from the borrower as well as different lender guidelines.
Rental income can help in several key ways, which is important to know if you’re considering buying a home with or without a suite.
Rental income can allow you to qualify for a larger mortgage, making it easier to afford homes with suites. With that decision, lenders like to see income that helps cover mortgage payments, especially if it’s tied to the property (rental income).
Additionally, it can be a helpful tool for entering the real estate market. Buying a full duplex and renting out the second home. Buying a property with a suite and renting out part of it. These are ways to get a guaranteed income to help afford a mortgage.
To use rental income, lenders typically require:
Even if a suite isn’t legally registered, some lenders may still consider the income. There are some requirements for this to happen, including:
Not all lenders treat rental income the same way. That said, working with a mortgage broker lets you leave it to the professionals. I’ll work with the lender and keep you updated on any information you need to know/send in. This saves you the headache of trying to understand everything.
Future Reading: Considering Buying a Rental Property?
Strong credit and stable income will improve your situation, and sometimes legal suites can receive more favourable treatment.
Rental income can be a game-changer when qualifying for a mortgage. When I bought my first home, it included a basement suite that I rented out.
As a knowledgeable mortgage broker, I can help you maximize your chances of having rental income used. I’ll be able to match you with the right lender for your unique situation. If you’ve been toying with the idea of buying a property with a rental suite and would like more information, give me a call today. I’d love to see what we can do to make it happen! Give me a call at 250-826-3111, apply on my website or contact me through my online contact form, and I’ll be in touch.
Let’s get your application off the ground.
