What You Should Know About Buying A Home With a Rental Suite
Dan Caird • March 3, 2021
- Thinking about buying a home with a rental suite? This can be a great idea if you want to help offset the cost of your home expenses, and it can also potentially help with qualifying for a mortgage on your new purchase, but there are some things you should know up front.Most lenders will allow you to use a 50% rental income offset to help you qualify; however, there are a few that will consider up to 100% given the strength of your overall mortgage application.
- Although it doesn’t have to be a “legal” suite, there should be a separate entrance along with a kitchen and bathroom in the unit.
- Income from a roommate is not allowed by insurers as rental income to be used in mortgage qualification.
- Lenders may require a signed lease agreement as confirmation of the rental income, and most prefer to see the agreement set to a year. This means you either need to speak to the existing tenant or have a potential tenant in place before qualifying for the mortgage.
- Some lenders may consider a statement of economic rents (from a property appraiser) in lieu of a lease agreement.
- Most lenders will not accept rental income from a family member.
Suffice to say, if you plan on purchasing a property with a rental suite and you need the rental income offset to qualify for the mortgage, you should make sure you’ve been pre-approved ahead of time and you’ve worked the numbers.
If you have any questions or want to get the mortgage process started, contact me anytime!
Share
DAN CAIRD
Mortgage Agent | DLC
RECENT POSTS
The Bank of Canada announced today that it is holding its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%. This decision comes against a backdrop of significant global uncertainty — and for Canadian homeowners, buyers, and anyone with a mortgage coming up for renewal, here's what it means.
Buying a home is one of the biggest financial commitments you’ll ever make. That’s why lenders want to be sure you can handle your mortgage payments—not just today, but also if interest rates rise in the future. This is where the mortgage stress test comes in. Many Canadians hear the term but aren’t entirely sure what it means or how it affects them. Let’s break it down in plain language. What Is the Mortgage Stress Test? The stress test is a rule introduced by the federal government that requires all mortgage applicants to qualify at a higher rate than the one they’ll actually pay. Currently, you must qualify at the greater of your contract rate + 2% or the benchmark qualifying rate (set by the Office of the Superintendent of Financial Institutions). For example: If your lender offers you a 5-year fixed mortgage at 5.25%, you must show you could still afford the payments at 7.25% . Even if rates don’t rise that high, the stress test ensures you won’t be overextended if they do. Why Does It Matter? The stress test protects both borrowers and lenders by: Preventing over-borrowing : It ensures you don’t take on more debt than you can realistically handle. Preparing for rate hikes : With interest rates fluctuating, it’s a safeguard against sudden increases. Strengthening financial stability : It lowers the risk of defaults, protecting the housing market as a whole. While it can sometimes feel like a barrier—reducing the amount you qualify for—it’s ultimately designed to keep you from becoming “house poor.” How Does It Impact Buyers? The stress test can significantly affect your homebuying budget. For example, without it, you might qualify for a $600,000 mortgage, but with the stress test applied, you may only qualify for $500,000. That doesn’t mean your dream of homeownership is out of reach—it just means you may need to adjust expectations or explore other strategies, such as: Increasing your down payment Paying down existing debts Considering alternative lenders who may have different qualification standards Why Work With a Mortgage Professional? Every lender applies the stress test, but not every lender views your application the same way. An independent mortgage professional can: Shop multiple lenders to find the best fit Run affordability scenarios at different rates Help you understand how much house you can truly afford—without stretching your finances too thin The Bottom Line The mortgage stress test isn’t meant to stop you from buying a home—it’s there to protect you from financial strain down the road. By understanding how it works and planning ahead, you can make smarter choices and buy with confidence. If you’re thinking about purchasing a home, refinancing, or simply want to know how the stress test affects your options, connect with us today. We’ll help you stress-test your budget and find the mortgage solution that works best for you.
