Buying an investment property may sound enticing. Purchase a second home or apartment, and then rent it out to tenants who will cover the expenditures and offer you with a consistent monthly income. In Canada, investment property mortgages differ from the type of mortgage you had when you purchased your own house. The criteria are tougher, and the down payment demand is larger.
An investment property is a piece of real estate purchased for the purpose of generating income rather than as a primary or secondary residence.
You may want to generate revenue by renting the property, reselling it once it has risen in value, or both. Investment properties can be owned by individual investors, groups of investors, or companies.
How Do Investment Property Mortgage Works?
Getting a mortgage for an investment property is not the same as getting a mortgage to buy a primary or secondary residence.
First, you must decide whether you will live on the land in any manner. If not, you’ll need to apply for a rental property mortgage, commonly known as an investment mortgage. In this instance, you will need to make a 20% down payment on the purchase.
If you want to live in one apartment while renting out the others, you can utilize an owner-occupied mortgage, which allows you to make a smaller down payment by paying for mortgage default insurance.
- A down payment of at least 10% is required for properties with three or four units, such as a house with a basement suite or a duplex building.
- The minimum down payment for a property with two units, such as a duplex or a house with a basement suite, is 5% for properties under $500,000.
- If it costs more than $500,000 but less than $999,999, you must pay down 5% of the first $500,000 and 10% of the balance.
- If the property costs $1 million or more, you must pay down 20% regardless of whether you live there or not, because you will not be qualified for home loan insurance.
How To Qualify For An Investment Property Mortgage?
The application process for a rental property mortgage is more stringent and thorough than it would be for a normal mortgage on your primary residence. In addition to the large down payment requirement, you must have an excellent credit score, which may be higher than that required for a regular mortgage.
You will also need to demonstrate to the lender that the building will generate sufficient rental income. You can demonstrate this by providing a current lease for existing renters or current market rental rates for comparable properties.
You must also demonstrate that you will have sufficient non-rental income to finance the mortgage in the event of a tenancy break. Finally, not all lenders provide rental mortgages. In Canada, they are especially frequent among large banks and lenders.
If you are looking for a reliable mortgage broker who can help you with investment property mortgage in Calgary, Sandhu & Sran Mortgages is the name to trust. For more details on our mortgage products, give us a call today.