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Does owning a rental property impact your ability to get a second mortgage?

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[OP]
Member
Jun 4, 2006
436 posts
6 upvotes

Does owning a rental property impact your ability to get a second mortgage?

I currently own a condo that I rent out and myself rent another place in a different town. It's time to renew my mortgage for the condo I rent out and I'm trying to decide between a fixed or variable. I would like to go with a fixed mortgage. However, I plan in the next couple of year to buy a house but would like to keep the condo as a rental property. Since I'm earning income from the rental property that easily covers the mortgage for it, it shouldn't be a problem for me to pay for two mortgages. Would I have trouble getting a second mortgage for the house I plan to buy? This is with the assumption that I have income from the rental property to cover the cost of the first mortgage or do lenders not take the rental income into consideration?

If I'd likely have trouble getting a second mortgage, I'd probably go with a variable mortgage for the rental condo so that I can easily sell that condo to buy the house instead without incurring large fees for breaking the mortgage early.

Thoughts? Suggestions?
17 replies
Deal Addict
Jul 29, 2006
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Depends on how your mortgage broker structures your financials. For us, we showed that we were cash flow positive from our rental properties and that we had long term tenants so it was no issue. They'll just ask for a copy of the lease agreement or past few months rental cheques as well as your expenses like mortgage/property tax/maintenance fee to make sure you're covered from the rental income.
Jr. Member
Nov 4, 2010
179 posts
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Vancouver
As long as you have a good history of strong cashflow you shouldn't have a problem.

Edit: Exactly what the above guy said. We just went through that process. They just asked for all info and documents. I keep very good records and have many spreadsheets with all our rental analysis and income/expenses/cashflow. As our rentals are doing so well, I'm certain there was no way we could have purchased the home we did if we DIDN'T have our rentals to help with income and debt servicing requirements.
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Mar 23, 2008
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Javeman wrote: I currently own a condo that I rent out and myself rent another place in a different town. It's time to renew my mortgage for the condo I rent out and I'm trying to decide between a fixed or variable. I would like to go with a fixed mortgage. However, I plan in the next couple of year to buy a house but would like to keep the condo as a rental property. Since I'm earning income from the rental property that easily covers the mortgage for it, it shouldn't be a problem for me to pay for two mortgages. Would I have trouble getting a second mortgage for the house I plan to buy? This is with the assumption that I have income from the rental property to cover the cost of the first mortgage or do lenders not take the rental income into consideration?

If I'd likely have trouble getting a second mortgage, I'd probably go with a variable mortgage for the rental condo so that I can easily sell that condo to buy the house instead without incurring large fees for breaking the mortgage early.

Thoughts? Suggestions?
The banks will likely want to see your tax notices, which will include your income from your rental property. A history of that income shows that you're ok on that.

Are you talking variable or fixed rates, or open and closed terms? Variable rates means your rate fluctuates throughout the term of your mortgage. Open/closed terms allow you to get out of the mortgage (or not) without issue. Totally different things.

C
[OP]
Member
Jun 4, 2006
436 posts
6 upvotes
CNeufeld wrote: The banks will likely want to see your tax notices, which will include your income from your rental property. A history of that income shows that you're ok on that.

Are you talking variable or fixed rates, or open and closed terms? Variable rates means your rate fluctuates throughout the term of your mortgage. Open/closed terms allow you to get out of the mortgage (or not) without issue. Totally different things.

C

Thanks for all the responses. Sorry I meant a closed mortgage in either case. Penalties for paying off a closed variable early would be easy to swallow whereas the penalties for a closed fixed likely wouldn't be.
Deal Addict
Feb 21, 2004
1473 posts
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Montreal
The answer will vary by bank but the main criteria affecting any new loan/mortgage you will seek is your debt ratio.
They will take into account your revenue and all outstanding debts to calculate if you can get a new mortgage or not (and how much) based on these numbers.

Furthermore, not all lenders will be equal. Some will consider your salary + 100% of your rental revenue, others will only take X % of your rental revenue depending on location (is it a bad area with lots of bad credit or vacancies) and even your credit score sometimes (are you more/less risky than others)
Newbie
Nov 18, 2012
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Greater Toronto Area
Owning a rental property (that has a mortgage on it) almost always has a negative impact, regardless of net cash flow from the property.
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Nov 2, 2013
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Depends on the lender, but usually yes. I'm trying to plan my financial picture right now as I'd face the same scenario in a few months (planning to rent current property out, then live in next). They only take into consideration some x% of the rental income (usually 50-70%, but heard here of 2 lenders doing <=75-80%) as your combined income for qualification purposes.

e.g. If your property makes 2000/month and your lender uses 60%, then only 1200 is counted; 14400 over the year. If you make 80K salary, then you're seen as someone making now 94,400 total instead of your $104,000 actual... 94,400 is then to see how much debt you qualify to service.
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Javeman wrote: I currently own a condo that I rent out and myself rent another place in a different town. It's time to renew my mortgage for the condo I rent out and I'm trying to decide between a fixed or variable. I would like to go with a fixed mortgage. However, I plan in the next couple of year to buy a house but would like to keep the condo as a rental property. Since I'm earning income from the rental property that easily covers the mortgage for it, it shouldn't be a problem for me to pay for two mortgages. Would I have trouble getting a second mortgage for the house I plan to buy? This is with the assumption that I have income from the rental property to cover the cost of the first mortgage or do lenders not take the rental income into consideration?

If I'd likely have trouble getting a second mortgage, I'd probably go with a variable mortgage for the rental condo so that I can easily sell that condo to buy the house instead without incurring large fees for breaking the mortgage early.

Thoughts? Suggestions?
Yes, you can still get another mortgage on a different property while carrying the rental. However, you have to qualify based off of income to carry both properties. Lenders will use some of the rental income to help qualify.

When you are ready to buy your second property, I would recommend getting pre-approved for a mortgage first and foremost to see your affordability.
Kevin Somnauth, CFA
Principal Broker - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative
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CdnRealEstateGuy wrote: Yes, you can still get another mortgage on a different property while carrying the rental. However, you have to qualify based off of income to carry both properties. Lenders will use some of the rental income to help qualify.

When you are ready to buy your second property, I would recommend getting pre-approved for a mortgage first and foremost to see your affordability.
I remember talking to you before - what percentage of rental income do you guys use?
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50% of rental income is most commonly used for qualification, as far as I know.
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FirstGear wrote: I remember talking to you before - what percentage of rental income do you guys use?
There are a lot of different calculations out there...it depends on the borrowers situation and the lender.
Kevin Somnauth, CFA
Principal Broker - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
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can someone recommend lenders that you use more than 50% of rental income on calculations?
Jr. Member
Mar 4, 2013
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Kingston
Lenders that will use more than 50%:

CMLS
Merix
Street Capital
National Bank

If you have 2 rentals, the options are greater. TD & First National allow more than 50% in these cases.
anotherbargainhunter wrote: can someone recommend lenders that you use more than 50% of rental income on calculations?
Brandon Lowi - Mortgage Agent - The Mortgage Professionals - Lic.#10280
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anotherbargainhunter wrote: can someone recommend lenders that you use more than 50% of rental income on calculations?
There are a lot of them.
Kevin Somnauth, CFA
Principal Broker - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative
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Here asking around ATB and Scotiabank I was told 75-80%... but there are many many lenders that you can find going through mortgage brokers. The smaller players sometimes are more lenient as they want to take business from the big banks. I try doing more research but no one really seems to want to give you a lot of information until you actually start signing papers and give them a credit check and property to look at.
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alanbrenton wrote: I'm surprised that many monoline lenders still don't report mortgages in credit files, possibly even on Residential Mortgage Credit Report (RMCR).
https://blog.mint.com/credit/what-is-a- ... rt-072012/

Has this changed with news the either Transunion or Equifax will be reporting these going forward?
Mortgages started reporting on credit bureaus in 2015, however they don't influence your credit score for some reason.
Paul Meredith
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