Making Home Ownership More Affordable
As of September 28, 2015, Canada Mortgage and Housing has announced that it will be creating more flexibility in order to make home ownership more affordable.
From 50% to 100%
For a two-unit owner occupied home, CMHC currently adds 50% of the rental income of a second suite to the buyer’s income for mortgage qualifying purposes. Starting September 28th, CMHC will consider adding up to 100% of the rent to the buyer’s income. This should make affording the purchase of a home easier to qualify for.
Taxes and Heating Excluded from Qualifying Ratios
CMHC and lenders typically use 32% of the buyer’s gross income--called the gross debt service ratio--to service the mortgage principal and interest plus taxes and heating costs for the home. This is known as the PITH. Under this new program CMHC states, “The annual principal and interest for the property including the secondary suite must be used when calculating the debt service ratios.” So taxes and heating costs are excluded from the debt service calculation, again improving buyer affordability.
According to Mr. Robert McLister, editor of CanadianMortgageTrends.com (CMT), “By excluding property taxes and heat, that borrower’s debt ratios drop and that, in turn, helps them qualify for a property that’s 7-8% more expensive.”
What about a 3-4 Units?
If a buyer is considering the purchase of a 3-4 unit owner-occupied rental property or a 1-4 unit non-owner occupied rental, the net rental income can be used as part of the borrower’s gross annual income. This is established by deducting operating expenses from the gross rent.
Of course the rental units must be legal.
In other words, the property must be zoned to allow for a rental or have a legal non-conforming use. It would also need to meet Fire Code and Building Code regulations, and pass an Electrical Safety Authority (ESA) Inspection.
Additional Conditions Using 100% of Gross Rental:
- “The income must have been sustained over the last two years.”
- The income cannot exceed the average rental income of the last two years. This accounts for vacancies and income and market fluctuations.
A borrower must have a minimum credit score of 680 which is determined to represent a strong history of managing credit.