During the recent changes in the CMHC rules have brought about some interesting new rules for the rental purchaser. These rules have been changing for about the last decade as there was a time when you could purchase rental properties with as little as 5% down payment and receive a credit of 80% of what is known as rental properties.
Today’s rules have changed so much that you will now find yourself requiring at least a 25% down payment and depending on the lender as little as a 50% rental offset. Many lenders also want to ensure that if you have more than one rental that you have one of the following, enough other liquid assets to cover for each rental that you have, some will want you to have a DCR (debt coverage ratio) of at least 1.2. The DCR sheet is a complex way to make sure that you have considered just about every possible cost of maintaining a rental property including maintenance, taxes and the possibility of it being vacant for part of a year.
Determining your rental offset has also become a complex process, in our submission system known as filogix there are built in calculations that are exactly as CMHC has written them and so they allow for the poorest of reduction of rental income. We also have lenders who allow us to use a simple spreadsheet that says basically takes your rental income deducts condo fees,5% for fire insurance, 15% for gross monthly expenses, your mortgage payment and your property taxes. The end result is one of two things, you either have a surplus or a shortfall. You then take that number and either add or subtract it from monthly income. It obviously makes the most sense as the money either goes in your pocket or you take it out.
As you can see the rental calculation is not as straight forward as you would think and it takes a skilled mortgage broker to make sure you are getting the proper advice. The DLC Brokers for Life team is more than willing to help you decipher the world of Rental Properties.
At Brokers for Life we strive to meet our commitment to you, Real Life Mortgage Solutions. Sometimes the cash back will be right for you sometimes we can help you find a less expensive route to meet the needs of a growing family and moving into a new home in Calgary.
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