Have you ever thought about buying a rental property?

The rules within the last year have changed and I will go through the main guidelines as it pertains to these type of properties.

There are basically 2 types of properties we need to discuss under the residential rental  programs. They are owner-occupied rentals and non-owner occupied rentals up to 4 units. (anything over 4 units falls under the commercial lending category with different guidelines and regulations – we will leave this one to another blog in the future)

Owner-occupied is simply a property that you as an owner will live in but it also has a rental component in it. (This does not mean a room but a separate area with its own access – such as a basement apartment). If the property is a 2 unit property then you can purchase this property with as little as 5% down and in certain situations it will qualify under the no down program. If the property has over 2 units and up to 4 units you will need 10% down.

As a broker we are allowed to use 50% of the rental income and add it to your income to qualify the deal. For example using a client with an income of 50k per year, a monthly debt load of $700 (car payment, credit cards etc), property tax amount of 2400/year and using a current 5 year rate of 3.49% and a 30 year amortization then this particular client could purchase a 163k home with 5% down. Take the same figures but assume a $800/mth rental component and adjust the property taxes to 3600/year (in NB a owner occupied rental is 1.5 times more for property taxes) this same client would qualify to purchase a 177k home. The difference in the 2 mortgage payments is about $60/mth but you are going to be getting $800/mth in rental income.

A non-owner occupied rental is a building that is completely rented out. This could be a single family home up to a 4 unit building. This is where the rules have changed. You will require a minimum of 20% down payment to purchase this type of home. We can again include 50% of the rents the property is generating but again we have to use all other debts you have. There are various calculations if you own more than 1 property and it’s best to speak to a professional to ensure you are getting all the correct information.

You can go to CMHC or Genworth to get more information on rental properties. Each insurer have there own guidelines but we must point out that each lender also have different guidelines. This is why it is important to speak to a broker who is knowledgeable with both the lenders and insurers policies and guidelines. Please ensure you are getting the correct information before going out to look for the property.

This is a basic guideline you can use and it will give you a great starting point.

As always I encourage you to leave a comment and contact me with any questions you may have. I offer unbiased resources to help you make the most educated mortgage decision. Let me help you realize the dream of home ownership or getting out of debt sooner. Call or email me anytime.

Eric Gall is a mortgage specialist for TMG Atlantic. If you are purchasing, refinancing or renewing your mortgage contact Eric or check out his website and apply online.