Many people choose rental properties as a way to diversify their financial portfolio and create additional income streams. If you’re in the market for an investment property to rent out and plan to use a mortgage insured by Canada Mortgage and Housing Corporation (CMHC), then you’ll want to check out a new checklist of steps to a successful CMHC mortgage application. If you’ve financed an owner-occupied property in the past, then you may not realize the extra complexities involved with financing an investment property.
For starters, you’ll typically need mortgage insurance on an investment property with a down payment of less than 25 per cent, while the standard is 20 per cent for owner-occupied properties (a few lenders will allow an uninsured mortgage with 20 per cent down but they’ll typically charge a rate premium). You’ll also need to provide additional information on the property.
Here’s a quick rundown of the checklist:
- Application fees: CHMC requires an upfront fee of $150 per suite for buildings with 100 suites or less. In excess of 100 suites, the fee for each additional suite is $100 per suite.
- Property description and photos: Include the property’s municipal address and suite count with colour photos of the property’s current condition. This is typically the MLS listing.
- Rent roll: A current rent roll should list all suites, tenant names or vacant suites, suite type by bedroom count and base rent per month for each suite.*
- Financial Statements/Property Operating Statements: Have at least three years of operating statements for the property.*
- Clean Phase I Environmental Report: CMHC will not lend on properties that don’t meet current provincial environmental standards, so they’ll need this report.*
- Sponsorship information: Include an accurate description of the property’s ownership structure.*
- Due diligence documents: To reduce underwriting time, provide any documents that might assist CMHC with its decision, such as insurance statements or inspection reports for the building and property management contacts. Your broker would typically gather these documents for you.
*3-6 would be most applicable if you’re buying an entire building rather than a single rental suite.
Review out the full checklist here for more details, and be sure to include all the necessary information to avoid delays or worse, an outright rejection. If you don’t qualify for a CMHC-insured mortgage, then a mortgage broker can explain alternate financing options for rental properties.
Also be sure to read up on landlord-tenant laws in your province to make sure that you’re complying with regulations in your jurisdiction. British Columbia has a comprehensive guide to the Resident Tenancy Act available online. For instance, if the property already has an existing tenant when you close, then you won’t have the same options to screen the tenant as you would with a prospective tenant. But for prospective tenants going forward, you would be entitled to request information to conduct a credit check and background check and to withhold consent if it appears the tenant cannot comply with the lease.