For mortgage purposes, investment properties are defined as non-owner occupied rental properties. Buying rental properties can be an effective way to build net worth and generate positive cash flow over time.
Rental properties with up to 4 units
can be purchased, or refinanced, under current mortgage insurance programs. The building must be legally zoned and no commercial component is allowed. Purchase and refinance options are available at up to 95% of value for 1 and 2 unit properties, and 90% of value for 3 and 4 unit properties. Applicants must have verifiable income, a down payment, and good credit.
Mortgage insurance premiums for rental property purchases (and refinances) are higher than for regular properties. Risk of loss for mortgage insurers is greater, because many property owners depend on consistently high occupancy rates, and on-time rent payments, to service their mortgage(s) and other debts. Also, risk of property damage increases when the owner does not live in the building.
CMHC allows 80% of rental income (from all rental properties) to be used in determining eligibility. Rents must be verified via leases, T1 Generals, or using fair market rent as determined by an appraiser. Some lenders limit the number of income properties allowable. Others allow you to accumulate properties, as long as your total gross income is sufficient to support each new purchase, in accordance with debt service requirements.
Properties with more than 4 units
fall outside regular residential mortgage insurance guidelines. Some lenders will finance buildings with more than 4 units, and some will allow commercial components as well. Underwriting guidelines are stricter, and sizeable down payments are required for these types of properties.
For more information on investment properties, please contact
- Janet MacDonald
,
- Colin Birkas at 613-929-7629 or
- Jeff Dillon at 613-453-3663 or
