Richmond Hill Mortgage Broker
Mortgage With 100% Rental Income Qualified
Updated: Dec 13, 2022
When using the rental income to qualify for a mortgage, most borrowers will quickly learn that most lenders will only use 50% of the rental income towards the debt-to-income ratio. This may come as a surprise to many new real estate investors with rental property income.
Qualifying with up to 50% of the rental income is a standard lending guideline among Tier 1 Banks in Canada, such as RBC, TD, CIBC, BMO, and Scotiabank. These financial institutions have become household names for many homeowners and home buyers in Canada, and many might mistakenly assume that their lending guidelines are standard practice for other lenders across the country. But, that is not the case with alternative lenders.
Alternative Mortgage Solutions
Alternative lenders in Ontario have taken notice of this limitation that Tier 1 Banks in Canada imposed on rental property owners when qualifying for a mortgage. Therefore, these lenders have adjusted their lending guidelines to allow borrowers to include up to 100% of the rental income towards the borrowers' debt-to-income ratio. This benefits the borrowers in many ways, such as qualifying for a higher mortgage and a solution when the Tier 1 Banks decline their mortgage application.
Mortgage Underwriting Criteria
For those who are considering applying for a mortgage with 100% rental income included towards the debt-to-income ratio, there are several factors that you will want to prepare in advance to ensure a smooth underwriting process.
Borrowers must justify all rental income declared on the application by supporting documents before the rental income can be included in the debt-to-income ratio. Alternative mortgage lenders provide alternative solutions to borrowers declined by banks, but they are also registered institutions with strict regulatory requirements. Therefore, supporting documents to verify the source of income is paramount during the underwriting process by the alternative lenders, just like the Tier 1 Banks would have done.
An experienced mortgage broker will help you with the process and the documents expected by the lenders to avoid unnecessary delays. However, these are the typical documents that lenders will require to verify the rental income.
Criteria 1: Rental Agreement
Rents collected from tenants must be supported by a Rental Agreement document that stipulates at least the following information:
Name of the Landlord,
Name of Tenant(s),
Address of the property,
Length of tenancy
Lenders understand that in Ontario, tenants go to month-to-month rental by the end of the Tenancy Agreement and tenants are not required to sign another contract with the landlord to rent the same property. Therefore, borrowers do not hesitate to provide a Rental Agreement document dated years back as long as the same tenant is currently renting the property.
Criteria 2: Rent Payment Cheque and Bank Statement
After reviewing the Rental Agreement document, the lender’s underwriter will expect to see evidence of rental payment deposited from the Renter to the Landlord for the same amount declared on the Rental Agreement document. Borrowers can quickly fulfill this requirement by providing the rent payment cheque from the tenant and the bank statement belonging to the borrower showing the rent payment deposited. These two documents provide traceability of the source of income and information to verify the rental income amount.
Work with a mortgage broker to figure out how many monthly bank statements are required by the lender. Different lenders have varying requirements.
Criteria 3: Tenant Information
After verifying the source of income, lenders must confirm that the tenant's identity matches the Rental Agreement document to avoid any fraudulent claim. Borrowers can fulfill this requirement by providing the Tenant Information document and a scan of a government-issued ID of the tenant(s). An organized real estate investor will have the following information from the tenant(s) as part of their process when finding a suitable renter for the property. When in doubt, work with a reliable property management company to make sure this crucial information is collected.
Criteria 4: Property Tax Bill
Last but not least, lenders expect to see the Property Tax Bil of the current and previous years. The lender’s underwriter requires this document to verify that no tax arrears are registered against the property. A tax arrear against the property is a problem that will need to be resolved first before any borrower can apply for another mortgage against the property.
Another reason lenders review the Property Tax Bill is to verify that the borrower owns the property specified in the mortgage application form.
How to find alternative lenders that allow 100% of rental income to be used for a mortgage
Different banks use different underwriting criteria to calculate debt-to-income ratios, and only a few lenders allow borrowers to use up to 100% of their rental income for mortgages. These lenders do not advertise as aggressively as the Tier 1 Banks that have become household names in Canada. Therefore, finding these alternative lenders require some tribal knowledge and the best way to tap into such knowledge is to work with established mortgage brokers. Most mortgage brokers with award-winning reputations or who have been in the industry since 2008 will have access to these lenders. Why not ask our mortgage brokers and agents at Richmond Hill Mortgage Broker | MMGB if you can qualify today?
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