Points to remember when seeking mortgage for rental property:
- Banks will limit loan amount to 80% of purchase price/property value when approving mortgage for rental property (20% down payment required by client)
- If rental unit is a condo, many banks/lenders will now ask for an additional 5% (25% total) as down payment (with exception of certain units, location, etc.)
- Bank typically advertise rates for owner occupied residences, rate premiums will apply to any mortgage for rental property, with exceptions (up to 0.50% rate premium)
- When underwriting mortgage for rental property, banks will not use 100% of projected rental income to qualify deal. Banks will use 50% rental income offset to qualify deal
- Appraisal may be needed to determine value of fair-market rent. Fair market needs to be validated for any rental income used to qualify mortgage for rental property
- If rental unit is a duplex, or tri-plex the major banks must validate legal rental units before lending (fire certificate may be necessary). Alternative lenders may not follow same guidelines
- All other properties owned/mortgages/personal debt of every applicant must be factored into debt servicing ratios (GDS and TDS) for purchase of rental property (must fall within bank limits)
- Banks will request all of or combination of the following to ensure affordability (tax documents, employment letter/paystubs, lease agreements, bank statements, business license or articles of incorporation (if business for self, etc.)
- Certain banks/lenders/insurers may have restrictions on gifted funds/borrowed funds/foreign funds
When seeking a mortgage for rental property, consider using an experienced brokerage like Canadian Mortgage Services. We provide Mortgage Services in Brampton, Milton, Oakville & surrounding areas. We have over 38 years of combined industry experience and fund close to $20,000,000 per year. Rental financing requires out of the box thinking, and without the right experience it’s easy to miss important opportunities with specific banks/lenders. A strong portfolio of banks/lenders is also crucial when looking for a mortgage on rental property because no two lenders have identical lending guidelines.
The above noted points are not written in stone, but are typically the way deals are underwritten by the bank and all rental deals are treated on a case by case basis. There are ways to underwrite deals to appeal to the mass banks/lenders thus increasing your chances of getting your rental property financed with no headaches.
Still have questions? Contact us today to learn how we can help you!