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Odds & Ends About Insured Rental Financing

Rental-Property-Mortgage-Rules CMHC’s new rental mortgage rules have been around for few weeks now.

Here are some of the most common questions we’ve seen people ask about them.

1.  Why are property taxes and heat not factored into debt service calculations on properties that generate rent?

Answer:  When a property generates rent and it is owner-occupied or the subject property of the application, CMHC permits only 50% of that rent to be added to the borrower’s income for qualification purposes. This is referred to as a “50% add-back.”

When calculating total debt service, CMHC does not require property taxes and heat to be explicitly included in the formula. That’s because the 50% add-back method already discounts the rent to take expenses into account.

2.  How can you prove rental income for non-owner occupied rentals owned less than two years?

Answer:  CMHC requires a 2-year history to establish net rental income on non-owner occupied rentals.

When a rental has been owned for less than two years, CMHC permits “the current rent to be used for qualifying purposes if the Approved Lender is satisfied that the rental income is stable.”  To document this rental income, CMHC says lenders can use:

  • Audited or review engagement financial statements prepared by a practicing accountant
  • Signed leases; or,
  • Appraisals containing the reasonable rent rate, and expenses for the rental unit.

3.  Can you borrow the 20% down payment on an insured rental mortgage?

Answer:  CMHC says it generally permits borrowed down payments for non-owner occupied rental properties as follows:

  • The down payment must be borrowed against proven assets.
  • The proven assets must be “financial in nature, unencumbered by debt, and readily convertible to cash.”

That definition includes lines of credit (LOC) if they are secured by another property the borrower owns. Naturally, any LOC payments must also be factored into the borrower’s debt ratio calculations.

Conversely, borrowing against non-financial assets is not an acceptable way to meet CMHC’s minimum down payment requirements for non-owner occupied properties.


Mortgage-TipDon’t forget that lenders have their own policies as well, and they are sometimes more stringent than those above.

For example, not all lenders will let you borrow your down payment on a non-owner occupied rental property.

Suffice it to say, as of April 19 there are a slew of new rental guidelines to be aware of. If you have any questions, you can save a little effort by contacting a mortgage planner. Try to find one that specializes in rental financing to make life easier.


Sidebar:  For those who haven’t seen them yet, here are CMHC’s debt ratio guidelines for rental properties.