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. Let’s take a look at how investment property mortgages work in Canada.
Investment Property Mortgage may be the ideal solution for:
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 have residential zoning. That’s why 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 have commercial zoning, therefore 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.
Regarding 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. Since April 19th, 2010, Canadians have to make at least a 20% down payment on non-owner-occupied investment properties.
How to Qualify for an Investment Property Mortgage
To qualify for an Investment Property Mortgage, you must have a good credit history, demonstrate sufficient rental income (either through existing tenancy documentation or an opinion of market rent), and have enough non-rental income to meet the obligations of the mortgage.
To qualify for an investment property mortgage, you will need to provide your lender with:
Your lender will also need to run a credit check and calculate your debt coverage ratio.
Bank vs. Mortgage Broker
Similar to when you took out the mortgage on your principal residence, you can choose to have either a bank or a mortgage broker help you get pre-approved and then approved for investment property financing. With investment property mortgages, it could be even more important to consider working with a mortgage broker. The reason is their experience with other investors and familiarity with the special financing conditions required by individual lenders.
The other benefits of working with a mortgage broker are obvious. They only need to pull your credit report once, they shop around for you and they look for a product and rate that will match your financial situation. The best part is that you usually don’t have to pay them for their services – instead, the lender you end up getting financing from pays the mortgage broker a fee.
