# New Mortgage qualifying reality for investment properties



## Chris L (Nov 16, 2011)

I just attended our annual real estate presentation. The mortgage specialist outlined some of the new requirements for qualifying. Not much new for owner occupied, but he is turning a lot of people seeking to get rental properties. He is one of the more respected mortgage brokers in our city.

Some of the new things introduced or that he has noticed in the last year. These are essentially new government requirements, that he used to be able to skirt with some juggling and paperwork ("scamming" the lax rules). No longer, he said, he's turning investors away.

- you basically need 35% down to qualify
- you have to have a minimum of 650 beacon score (credit score). 
- they are frowning on "student rentals"
- you have to be able to pay for the mortgage yourself (they aren't considering rental income).
- in essence, only the well positioned will be able to qualify for rental mortgages so bring your A game.


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## speedboxx (Dec 31, 2013)

Any reference to validate source or provide more info?


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## Chris L (Nov 16, 2011)

speedboxx said:


> Any reference to validate source or provide more info?


Sorry, that's the best I can do. He is owner of the Mortgage Centre and presented this information to over 100 real estate agents and investors last week. Perhaps there is a mortgage specialist here who might shed some light.


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## Just a Guy (Mar 27, 2012)

While not quite as restrictive as he makes it out, I'll confirm getting mortgages for rentals is indeed much more restrictive these days...I've had a hassle getting my last 4 over the past few months.

Things that are exaggerated...35% down (you may get away with 20%, 25% more likely)...

They do consider rental income, but they consider significantly less of it than they did a few years ago...it used to be a ratio of about 1.1 to costs, now it's significantly less (as in the banks now calculate some of their previously approved properties as underwater).

Credit score has to be good.

They frown on a lot more than student housing, they also don't like conversions, small square footage, and mortgages below 100k...not saying it's impossible, just much harder, especially the last one as most rentals should fall in that category to be profitable.

Of course, difficult doesn't mean no. If your persistent, you can still get your property...though I've had to threaten to move my accounts...


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## marina628 (Dec 14, 2010)

I haven't tried to get a mortgage since 2009 on investments but because we had more than 4 we have been use to the 35% down rule.It is common sense you need to qualify to make the payments as tenants sometime leave you stuck to pay it but if you have a signed lease they will take 50% towards income.We never looked anywhere but TD so I have heard from reliable sources other banks will still do investment with 20% down and a mortgage broker is the best way to get this offer.


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## MRT (Apr 8, 2013)

Perhaps it is the case that some LENDERS have decided to adjust their rules regarding rentals? 

I haven't heard anything about gov't-mandated rule changes, especially since CMHC hasn't been involved in insuring rentals for years now, and a quick search online yielded nothing, but I've been out of the biz for a little while now.

It indeed used to be 20% down, with 50% of rental income used to help qualify the deal. The 1:1 rule was for multiple rentals...i.e. the lender wanted to see that the pool of rentals was cash-flow positive by at least 10% after all expenses (incl. additional allowances for maintenance, vacancy, etc).

If lenders are bumping up down payment requirements to 35% and not using ANY rental income...I'm all for it.


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## Just a Guy (Mar 27, 2012)

The government tightened lending rules last year. They changed things like lending to self employed people, ratios, max lines of credit, and they heavily hinted that they wanted banks to make lending more difficult...not a lot of announcements, but you really see it when you try to get a loan.


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## Chris L (Nov 16, 2011)

Just a Guy said:


> The government tightened lending rules last year. They changed things like lending to self employed people, ratios, max lines of credit, and they heavily hinted that they wanted banks to make lending more difficult...not a lot of announcements, but you really see it when you try to get a loan.


Bingo. I think that was what he was getting at. It's not like it's written in plain English, but he said, he'd let the clients down easy if they insisted on trying to qualify by the RE agent didn't want to do the dirty work. It's the man on the street that's going to find out the hard way that he won't qualify. He didn't make clear which of the items where mandated, but I do think the beacon score was one of them. I think the 35% down was a bit of a joke, but probably thrown in there as an...if you really, really, want the loan be prepared to cough it up large to qualify.

Regardless, the game is changing. The government only wants people to be buying to live in these places to knock down prices. I'm good on that, but it's because prices are ridiculous and people are getting dumb with their "investing." I got no problems if it wasn't going to affect the entire economy, but as we've seen...


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## RCB (Jan 11, 2014)

As of last week, Scotia was still at 20% down, and accepting *I think* 50% of rental income. Might have been 80% of rental income. I can't remember which, as I was there with a list of things to accomplish, in different areas.


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## Just a Guy (Mar 27, 2012)

Remember, advertising and approving are two different things. I find, in times like this, that, though the program exists, no one ever seems to qualify.


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## Michelle1983 (Jan 7, 2014)

So I'm just going to jump in on this thread as it's a related question. 

If someone has a condo they currently live in but plan to move out and rent another property and make the condo they own a rental, do they still need the 20% down? And if not, when they go to get another mortgage (say with a S/O) will they then need to put 20% down on the rental property?


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## Just a Guy (Mar 27, 2012)

When you buy the place you are currently living in, you may "qualify" for the home buyer's program and only need 5% down. If you move out and rent the place, you should inform the bank. Usually, if you pay the mortgage, they don't care, and you can continue to pay your mortgage, at least until renewal. Of course, technically, they could ask for you to provide more security on the loan (as in a cash call to improve your down payment). If you don't inform them, you are technically committing mortgage fraud. 

At that time, when you renegotiate, they will probably just offer to renew your mortgage for you automatically though, once again, they technically could ask for more money or approve you for less.

If you buy a new property to live in, you would again be able to "apply" for a 5% down mortgage. If it was another rental, you'd need at least 20% (talk to your bank first, as they are tight on lending right now and may want more). 

Of course, if this is your strategy to acquire rentals with only 5% down, I'll tell you that the banks aren't stupid, and you're not the first person to try this... The banks do catch on, and will put a stop to it pretty quick. While I've never heard of them asking for more of a down payment if you make your payments, it's in the standard mortgage contract that they can ask for more cash from you for many reasons...so you are gambling with large sums you may not be able to pay...

Technically, as I pointed out, you are committing mortgage fraud if you are doing this intentionally (though there are legitimate reasons why this scenario may occur, like two single people, each owning a place move into a new or the other person's place, so there is some leeway). 

In this lending market, where getting a loan is like pulling teeth, I think you'll find it difficult to pull something like this off...they are looking for reasons to turn you down.

Once a mortgage is in place, he banks rarely want to monkey with them. Though they reserve the right to, if you continue to make payments, they are usually happy. Of course, the government could always decide to crack down on CMHC...but the odds are low.


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## Michelle1983 (Jan 7, 2014)

Thanks for that - no, it wouldn't be a strategy at all. My boyfriend has a condo and we want to sell it and get a place of our own in a few years, but right now if he sells, he'll be at a loss due to realtor fees and breaking the mortgage, so renting may be more attractive, but he only has 5% in it...so I wasn't sure if that would hinder his ability to be on a mortgage with me in the future though.


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## Pvo (Jul 4, 2013)

You should be fine. Just let them know as a courtesy. I highly doubt they will change anything.


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## Michelle1983 (Jan 7, 2014)

Okay, great, that's good to hear then.


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## Mortgage u/w (Feb 6, 2014)

I am a mortgage underwriter and can confirm the 35% down payment rule for rental properties is false. The min required for a rental property containing 4 units or less is 20%. Most lenders will choose to insure the loan (premium added to loan) even with the 20%. Some lenders will still do it conventional. Myself, I can do it conventional with 25% minimum down. Again, this applies to residential rental properties containing 4 units or less of which non are owner occupied. If 5 units or more, then we fall under commercial loans where the loan will more often than not be insured with as little as 15% down....assuming the building is generating a profit to debt ratio of anywhere between 1.10 to 1.20......depending risk.


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