CMHC Announces New Changes For Financing Rental Properties

With the Province of Ontario pushing the concept of intensification and the rising cost of home ownership especially in places like Toronto, many would-be buyers are looking at an accessory apartment in their home as being a way to help make higher mortgage payments.  Canada Mortgage and Housing Corporation (CMHC) has just announced new rules that will make it easier for homeowners wishing to rent out a portion of their residence to obtain financing.

Effective September 28, 2015, homeowners will now be able to use 100% of their rental income when qualifying for a mortgage, prior to this just 50% of the rental income was allowed. In order to qualify for this new CMHC financing option the following conditions must be met.

• The property must be owner-occupied.
• The property being insured can have only two units (i.e., a duplex or a single home with a legal secondary suite). 
• Rental income cannot be used if the suite is “illegal/non-conforming” but “legal non-conforming” is okay. (Non-conforming means that the suite was grandfathered in before zoning/regulations restricted such units. You can check with the city to confirm if a suite is legal.)
• The suite must be self-contained with its own entrance.
• Property taxes and heat must be factored into the borrower’s debt ratios (which is currently not the case when using rent from legal secondary suites).
• For existing units, there must be two-year history of rental income from the suite. The maximum rental income allowed for qualification is a two-year average of the unit’s rent.
• For new units, a market rent appraisal can be accepted if an appropriate vacancy rate has been applied to the estimated rental income.
• Mortgage applicants must “demonstrate a strong history of managing credit” with a minimum credit score of 680.

  This new changes offer some great benefits for consumers.  Borrowers will now have easier access to mortgages when looking to buy a property that contains an accessory apartment.  This will make home ownership more affordable while also potentially increasing the number of rental units available for tenants.  As with every positive there is a potential negative.  Easier financing for properties with rental units could further heat up markets such as Toronto but overall I would have to say that this is a good example of public policy making.

 Locally in our market there is a strong need for good quality rental units.  As of the end of June, the 12 month average price for a single family home in our area was $338,000.  Being able to use 100% of any rental income you might have from a basement apartment etc. can go a long way in helping a buyer qualify for a mortgage while hopefully over the long term, providing for an increase in much needed rental units.