Real Estate Investors Need to Read This!

 

With recent changes to the mortgage rules, it’s getting pretty tough to arrange a mortgage on a rental property.

 

If you’re a real estate investor or know someone, have a quick read below and share with your family of friends.

 

It used to be that banks and mortgage lenders would use what we call “rental offset” to qualify an investor for a mortgage. That meant that the lender would take the gross rental income and deduct the mortgage payments and taxes and utilities and then you needed to be able to carry the shortfall. If there was a surplus then it would be added to your income.

 

Now the new rules make it very difficult to qualify. In the current economic environment with the new mortgage rules, lenders are now using a different formula to qualify investor mortgages.

 

Today, most lenders follow the guidelines set out by the federal government and implemented by CMHC for high ratio insured mortgages. The lender now adds 50% of the gross rental income to the borrowers gross employment or net business income and then they allow up to a maximum of 42% of the total income to cover off the new mortgage and property taxes plus all other monthly debt obligations including mortgages and taxes on owner occupied properties and rental properties.

 

That means that for a $1,000 monthly rent, lenders use 50% of that added to the your income and 42% of that to cover off all of your debts. That adds up to only $210.00 of the monthly rents being used to qualify the borrower.

 

With rental offset we could use 80% of the rents and offset it against the mortgage payment and then if there was a shortfall, it was considered a monthly debt obligation. In the example above we would take 80% of a $1,000 and offset it against the mortgage payments and taxes.

 

It seems the only way to qualify for a rental mortgage is if you have substantial gross employment income or high net business income. The good news is that we have the access to some lenders that still provide some level of flexibility in how they underwrite current rental properties that you own and we have the expertise to understand how to put the deal together.

 

If you would like to know how this impacts your portfolio or you are thinking of buying your first rental, give us a call or visit our web site.

 

Contact The Mortgage Centre to learn more