If a property is used primarily as a personal residence, but includes rental units, then your mortgage will be similar to a normal home mortgage.
Alternatively, if the property is only intended to be rented out to others, you will need a different and often more difficult-to-obtain mortgage.
Mortgages for Personal Residences with Rental Units
Many houses have outbuildings, basements, or additional floors that can be used as rental properties.
Even if you are intending to rent these out, the mortgage process will be similar to a normal personal residence. This also applies to second homes that are rented out to lodgers during some months of the year.
Like a standard mortgage, you must provide 5% money down. You will also need to provide proof of income. Fortunately, you can add in projected rental income. This income may help sell the bank on your ability to maintain the mortgage.
To calculate potential income, find a good rent estimate using the rentometer. Combine this estimate with reasonable guesses of depreciation to find your additional income.
Mortgages for Non-Owner-Occupied Rental Properties
Buying a property with the intention of renting all or almost all of its units requires a different kind of mortgage.
Mortgage providers will only offer rental property mortgages with a 20% down payment. This is because the CMHC offers much more limited coverage for rental properties than for residences. Mortgage providers need to manage this risk by asking for more money up front.
They will also need to assess your income against all of your existing mortgages. You will need to prove that your current income and any projected income from your properties will be sufficient.
This requires in-depth calculations of income versus taxes, depreciation, maintenance, and payments. Use a calculator from a trusted company to estimate the likely net profit or loss from your future property. Better yet, hire a professional property assessor.
Even if your property will initially run at a loss, you can still mortgage it if your other income is high enough to ensure payments.
Debt coverage ratio for a rental mortgage varies by bank. Some banks provide a flat ratio of 11%. Others calculate it from the likely profit of the rental property.
The Northwood Advantage
Northwood specializes in providing commercial loans for apartment buildings, and we provide a solutions for different properties and incomes! Contact us for a consultation today.
source: northwoodmortgage.com
