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Buying Rental Property

CMHC vs. Conventional CMHC

Minimum down payment is 15 %. Underwriting Fee of  $600 for 1-4 units.

Rental Mortgage Insurance Premium as a % of Loan Amount

Loan -to -Value Ratio Premium
Up to and including 65% 1.75%
Up to and including 70% 2.00%
Up to and including 75% 2.25%
Up to and including 80% 3.50%
Up to and including 85% 4.50%

The premium is due and payable as the mortgage funds are advanced and can be added to the mortgage loan.

Minimum Debt Coverage Ration (DCR)

The minimum is 1.10 and is arrived at by dividing the net operating income by the debt service (P&I excluding CMHC's fee and premium) which is calculated at the contract rate (min. term of 5 years) and an amortization period of 25 years.

Net Worth

The borrower's net worth should be at least equal to 25% of the loan with a minimum of $100,000.

CONVENTIONAL

Minimum Down Payment is 25%

The gross rental income can be used to offset the sum of the mortgage principal and interest payments and expenses associated with the rental property.

A consistent, predefined allowance for expenses ( i.e., taxes, repairs, vacancy, insurance) is to be used for all property types. The expense allowance to be use is 30% of the gross rental income. The resultant shortfall of expenses to income, if any is to be included in the TDSR calculation which may not exceed the 40 % maximum.

Example:

Gross Rental Income - $1000 (A) monthly rental income from property
Mortgage Expense - $ 800 (B) monthly P&I payments
Expense Allowances - $ 300 (C) 30 % of A
Surplus( or shortfall) - 100 (D)  A-(B+C)= ($100)

In this example. "D" results in a monthly shortfall of rental income to expenses is ($100) . The amount of the shortfall must be included as debt in the TDSR calculation.

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