Many Ontarians in the real estate market looking to purchase homes often already have properties that they’re renting out for tenants to make additional income, whether it’s a part of their own home or an entirely separate unit. This means that a fair amount of earnings are generated from rental incomes, especially those who own multiple rental properties.
Naturally, rental property owners would be very interested in using this additional income to support their mortgage applications when purchasing new properties, whether to live in them as a primary residence or to rent them out to supplement their income further. But is using rental income to qualify for a mortgage in Ontario a possibility? Let’s break down the details below.
Who is eligible for using rental income to qualify for a mortgage?
Since 2015, the Canadian Mortgage and Housing Corporation (CMHC) released new rules to allow homeowners that rent out a part of their home for a tenancy to use 100% of their rental income towards qualifying for a mortgage. However, to use this rental income when applying to lenders for a mortgage, you must live on the property yourself to qualify at all. Moreover, if you’re looking to claim rental income from investment properties, or properties bought for rental purposes, you will not receive any particular benefits for doing so.
What are the criteria for using rental income to qualify for a mortgage?
Since the CMHC is a Crown corporation regulated by the government, their rules set the expected standard for mortgage applications across the country. This means that as long as the homeowner’s circumstances meet the criteria and requirements outlined, most lenders will allow using rental income to qualify for a mortgage in Ontario. The requirements are as follows:
- The owner must live on the property.
- The property can only have two living units (e.g. the main home with a secondary suite or a duplex home).
- The rental suite has been occupied for at least two years.
- The suite meets all zoning requirements and regulations.
- The suite has its own entrance and is self-contained.
- The owner must have a strong credit history.
What does this mean for homeowners with separate rental properties?
Unfortunately, if you’re a homeowner who lives at your primary residence without tenants but has several rental properties giving you earnings, using rental income to qualify for a mortgage in Ontario is not permitted. To clarify, most big bank lenders and other more common lenders will not consider your rental income when looking at your mortgage application.
When it comes to using rental income to qualify for a mortgage in Onatrio, having more rental properties can actually hurt your chances of getting a reasonable mortgage rate. This is because lenders would like to secure their own interests; an applicant with multiple properties is taking on a lot of risks since rental income isn’t guaranteed and depends upon the tenancy being occupied all year long.
As a result, while the CHMCs regulations are great for homeowners living in a home with a rental suite that meets requirements, investment property owners renting their homes will find using rental income to qualify for a mortgage in Ontario much harder.
Mortgage alternatives for investment property owners
Not only are the CMHC requirements not beneficial to investment property owners, a relatively high credit rating is also needed for using rental income to qualify for a mortgage in Ontario. Since this isn’t helpful for those using rental properties as a way to make additional income, let’s examine some alternatives that can be used to help qualify for financing for a new home using rental income.
It might be a better idea for investment property owners to save their earnings for some time to make a larger down payment. That way, instead of using rental income to qualify for a mortgage in Ontario, they can improve their chances of qualifying by reducing the total amount that needs financing.
Another possibility is renovations to build a legal secondary suite in your primary residence for rental purposes. Several municipal-level government grants across Ontario can support the cost of making these improvements, and it’s best to take a look at what’s being offered within your region. If your suite meets the requirements and has enough space, this can be a long-term solution that may eventually allow using rental income to qualify for a mortgage in Ontario.
The easiest solution, however, is to get help from mortgage specialists like Mortgage Maestro. The requirements and considerations for a mortgage differ from lender to lender, and it’s not efficient to search through them one by one to find out if they accept using rental income to qualify for a mortgage in Ontario. Instead, you can rely on mortgage specialists to connect you with a lender that’s right for you and to find a great mortgage rate that takes all your income into account.
While it is definitely possible for homeowners to consider using rental income to qualify for a mortgage in Ontario, it is only usually a valid option for those renting their primary residence through a secondary suite that meets the requirements according to the law. This narrows down the number of Ontarians eligible to do so by a considerable amount, which leaves very few options for those Ontarians who make earnings through multiple or separate rental properties.
Mortgage Maestro is here to help you find the right mortgage for you. Whether you’re a first-time buyer or an experienced investor looking to make using rental income to qualify for a mortgage in Ontario possible, our specialists can make it happen. We have decades of experience in the mortgage industry and promise the best rates available for your needs. So contact us today to get a quote and see what we can do for you!