Canada Mortgage and Housing Corp. announced changes Monday that will make it easier for homeowners to rent out their residences and qualify for a loan.
The Crown corporation, which controls a majority of the mortgage default insurance market, says that starting Sept. 28 homeowners will able to count all the income from rental units when qualifying for a loan.
“Secondary rental suites are recognized as a source of affordable housing offered at a cost that is often lower than those for apartments in purpose built rental buildings,” the Crown corporation said in a notice on its website.
Homeowners with less than a 20% downpayment and borrowing from a regulated financial institution must get government backed mortgage default insurance. Even financial institutions not regulated by Ottawa, like credit unions, must abide by CMHC rules to be covered by the government backing.
Under the new rules, CMHC will consider up to 100% of gross rental income from a two-unit owner-occupied property that is the subject of a loan application submitted for insurance. The annual principal, interest, municipal tax and heat for the property including the secondary suite must be used when calculating the debt service ratios.
For three- to four-unit owner-occupied units and one- to four-unit non-owner occupied properties the net rental income (gross rents less operating expenses) can form part of the borrowers’ gross annual income.
Rob McLister, the founder of ratespy.com, said previously homeowners could only count 50 per cent of the income from apartments being rented out to qualify for a loan.
“The impact will be on single residences,” said Rob McLister. “The properties with a mortgage-helper will be all the more desirable.”
CMHC said when 100 per cent gross rental income is the income, ot must have been sustained over at least two years and the income amount must not exceed the average of the past two years. This is to make sure it addresses income fluctuations, cyclical trends and deals with unexpected events such as vacancies.
The Crown corporation said in order to qualify, prospective borrowers will have to have strong credit history with a minimum credit score of 680.
“Revisions to homeowner policies in the areas of downpayment assistance, market value requirements, share of equity appreciation and monthly subsidy assistance will be made to align CMHC’s policies with the evolving financing needs of the affordable housing marketplace,” CMHC said.
Robert Floris is an independent mortgage broker at Mortgage Architects in Hamilton, Ontario.