Buying an investment property is a popular option for Canadians looking at different ways to invest their money. However, unlike the mortgage you took out on your principal residence, financing an investment property is a little more complex. The number of units in the building and whether or not you’ll be occupying one of the units are the two major components that control what your financing will look like.
Investment Property Mortgages
When you start shopping around for an investment property, the first thing you need to consider is the number of units your building will have. Most buildings with 1-4 units are zoned residential, so the qualification criteria and financing options from lenders are only slightly more difficult than that of a mortgage similar to what you have on your principal residence. However, buildings with 5 or more units are zoned commercial, so a lender would require that you take out a commercial mortgage on it. With a commercial mortgage, the qualification criteria is even tougher to meet and interest rates are often much higher.
If it’s a multi-unit property, the second thing to consider is if you, the owner, will be living in one of the units or not. If you will be occupying one of the units, the property would be considered owner-occupied. If all of the units will be rented out, your property would be considered non-owner occupied. The major difference between the two is how much of a down payment you need to make.
- Fixed, Variable and Adjustable Rate Mortgages Permitted
- Very good rates (very close to best if not best)
- Up to 80% LTV for a 1-4 unit Rental Property
- Extended Amortizations: up to 30-years
With the Investment Property Program, borrowers can:
- Purchase or Refinance an investment property up to 80% LTV
- Benefit from competitive interest rates and NO application fees
- Enjoy the payment flexibility that comes with an extended amortization
- Purchase an investment property in a cost-effective manner
- Enjoy the convenience of one mortgage and one monthly payment
Traditional – 20% Down Payment Investment Property Mortgages
With a minimum 20% down payment, purchasers have many options available to them when buying investment/rental property.
What is the cost for Mortgage Insurance? With 20% down, the mortgage is conventional and no mortgage insurance is required.
Many lenders will offer their best rates.
Best Rental Product
Basically, if you have 20% to put down, have good credit and income, you also qualify for a 35 year amortization.
The requirement for a minimum net worth varies from one lending institution to another. Most lending institutions do not have a minimum net worth, however some require that you have a minimum $100,000 net worth per rental property.
Debt Coverage Ratio
The requirement for debt coverage ratio varies from one lending institution to another. Some institutions will use rental off set for qualifying purposes, while other lending institutions will use 1.10% debt coverage ratio.
1.10% debt coverage ratio is arrived at by dividing the Net Operating Income by the Debt Service.
Rental off set is when a lending institution uses 50%~70% of the rental income and off sets it against the P.I.T. Only the shortfall will be included in the Debt Ratio. If there is a rental surplus this will be added to the client’s income. Assume a rental property with P.I.T. of $1432 and rental income of $2000. We will take 70% of the $2000 income ($1400) and deduct that from P.I.T. ($1432). We will only add the $32 shortfall to the Debt Ratio.
Since April 19th, 2010, Canadians have been required to make at least a 20% down payment on non-owner occupied investment properties. Use the following chart to see the minimum down payment both owner and non-owner occupied investment properties require.
|Owner-Occupied?||Down Payment||Max Loan-to-Value|
As you can see, non-owner occupied investment properties require at least a 20% down payment. However, if you plan on living in one of the units, you can put down as little as 5-10%, depending on the total number of units in your property.
We are here to help you secure the best possible investment property loan. As a mortgage broker, it is my job to get you the loan on the best terms and for lowest payments possible. Contact me today or call at 416-402-7264 for a free consultation!