Good news for future homeowners with rental suites: Canada Mortgage and Housing Corp. has announced that effective Sept. 28, it will count 100 per cent of rental income when qualifying for an insured mortgage, a move aimed at making housing more affordable. Many homeowners already use rental suites to help offset the costs of their mortgage, but currently CMHC only allows for a 50% add back of the rental income.
Mortgage insurer Genworth already counts the borrower’s full rental income. However, CMHC is Canada’s biggest player in mortgage insurance, so this change gives potential buyers two chances to get their mortgage application approved, although the qualifications are very similar between the two insurers.
Of course, this only changes the criteria for mortgages on homes that have a separate, self-contained rental suites (and for some lenders it must be considered a legal suite). Many first-time buyers in BC and especially in the Lower Mainland don’t choose detached homes as a first home. Often, the price point is just too high for both the down payment and income qualification, especially for one applicant. And since the purchase price would have to be under a million dollars, that again leaves very few properties with a basement suite in the Vancouver area.
This new change will have a bigger impact for borrowers who are willing to purchase on the outskirts of Vancouver or in other areas of the country, as they’re more likely to have a rental suite and be under the million dollar mark. Most of my first-time buyers are buying one or two bedroom condos in the city close to amenities and transportation who would not see any changes to their eligibility based on CMHC’s announcement. That said, I have helped clients in Ontario and Alberta who have purchased single-family homes as their first property.
While borrowers can now use their full rental income to qualify for a mortgage, they may want to budget more conservatively after qualifying rather than counting on full occupancy for the entire year. It’s not uncommon for a unit to sit vacant for a month or two when a tenant leaves. In addition, there may be added expenses for repairs and maintenance. During months that rental income isn’t flowing in, the owner has to cover the full mortgage payment.