Purchasing an investment property can be a great way to round out your investment portfolio and generate extra income for years to come.  However, qualifying for a mortgage for rental properties is more complex with more stringent criteria:

DOWN PAYMENT

Since April 19, 2010, Canadians are required to put at least 20% down payment on non-owner occupied investment properties (whereas, if you were purchasing a property, 5% is the minimum down payment required).  These funds should be from your own resources — savings, investments, or equity take out on your primary residence.

NET WORTH

Several lenders have a minimum net worth requirement for customers looking to purchase rental properties.

DEBT COVERAGE RATIO

In addition to the mortgage on your primary residence (and any other properties you own), the requirements for debt coverage ratios vary from one lending institution to another.  You might think that if a tenant pays you $1,500/month rent, that would simply wash out a $1,500/month mortgage payment on the property … not exactly.  Many lenders will only consider 50% of the rental income, while factoring in 100% of the mortgage payment and property taxes.  Lenders are also thinking about vacancy, insurance, utilities, maintenance, and (if applicable) property management fees and condo fees.  Rental income calculations, offsets, and debt coverage ratios vary from one lender to another — we’ll find the best option for your specific situation.

Contact me and we’ll review the process and help you make sense of it all.