New CMHC rules to include rental income in mortgage application

Changes to mortgage rules mean that some home buyers in the hottest housing market may soon get a break when it comes to their loan application.

Currently, home buyers with a deposit of less than 20 per cent are required to have their mortgage loan application approved and insured with mortgage insurance such as CMHC or Genworth.

Starting this fall, CMHC plans to change the rules for those buyers to allow them to include projected income from secondary suites when they apply for a loan.

CMHC will consider up to 100 per cent of gross rental income from a two-unit owner-occupied property that is the subject of a loan application submitted for insurance the new rules state.

Additional conditions when home buyers wish to use these new rules include:

• The income must have been sustained over at least two years.
• The income amount must not exceed the average of the past two years, to address income fluctuations, smooth out cyclical trends and unexpected events such as vacancies.
• Up to 100 per cent of gross rental income may be used only where prospective borrowers can demonstrate a strong history of managing credit generally considered to be a minimum credit score of 680.

The rule change is aimed at boosting affordability, the new regulations could actually further heat up housing markets in Toronto and Metro Vancouver.

In the Vancouver area, the changes would most likely be felt in suburban areas, including the Fraser Valley, where single family homes are still within reach of average first-time buyers.

These changes will likely appeal to young families, allowing them to buy bigger properties with suites that can later be used by the owner.  When the young family grows larger, they can then ask the renters to leave and occupy the space themselves without having to move.

For someone who is looking to buy a house with a basement suite that was generating $1,200 in rent, they can borrow an additional $72,000 to purchase that unit because of that change.