Purchase Rental Property
Get a Mortgage for Rental Property in Ontario
Are you thinking of investing in a rental property in Ontario? If so, you’re in good company. Ontario’s real estate market is thriving, and investing in a rental property can be a profitable venture. However, before you can start reaping the benefits, you need to secure financing. In this article, we’ll explore how to get a mortgage for a rental property in Ontario, including the types of mortgages available, eligibility requirements, and the application process.
1. Types of Mortgages for Rental Properties in Ontario
When it comes to financing a rental property, there are several types of mortgages to consider. These include:
1. Conventional Mortgages
A conventional mortgage is a traditional mortgage that is not insured by the government. These mortgages are typically offered by banks and credit unions and require a down payment of at least 20% of the purchase price.
2. High-Ratio Mortgages
A high-ratio mortgage is a mortgage where the down payment is less than 20% of the purchase price. These mortgages are insured by the Canada Mortgage and Housing Corporation (CMHC) and require mortgage default insurance.
3. Home Equity Line of Credit (HELOC)
A HELOC is a type of mortgage that allows you to borrow against the equity in your home. This can be a good option if you already own a home and have equity built up.
2. Eligibility Requirements for Rental Property Mortgages in Ontario
Before you can get a mortgage for a rental property in Ontario, you need to meet certain eligibility requirements. These may include:
- Good credit score: A credit score of at least 650 is typically required.
- Sufficient income: Lenders will want to see that you have enough income to cover the mortgage payments and other expenses.
- Down payment: A down payment of at least 20% of the purchase price is typically required for a conventional mortgage. For a high-ratio mortgage, a down payment of at least 5% is required.
- Property appraisal: Lenders will require an appraisal of the property to determine its value.
- Rental income: Lenders may also consider the potential rental income when evaluating your application.
3. The Application Process for Rental Property Mortgages in Ontario
The application process for a rental property mortgage in Ontario is similar to that of a traditional mortgage. Here are the steps involved:
Before you start house hunting, it’s a good idea to get pre-approved for a mortgage. This will give you an idea of how much you can afford to spend on a rental property. To get pre-approved, you’ll need to provide the lender with your financial information, including your income, expenses, and credit score.
2. Property Search
Once you’re pre-approved, you can start looking for a rental property that meets your needs and budget.
3. Offer and Acceptance
When you find a property you like, you’ll need to make an offer. If the seller accepts your offer, you’ll need to provide a copy of the purchase agreement to your lender.
4. Mortgage Application
Once your offer is accepted, you’ll need to submit a formal mortgage application to your lender. This will include information about the property, your income, and your financial history.
5. Underwriting and Approval
After you submit your application, the lender will review it and determine whether to approve your mortgage. This may involve an appraisal of the property, a review of your credit score, and an evaluation of your financial history.
If your mortgage is approved, you’ll need to close the deal. This involves signing the mortgage
4. Tips for Getting Approved for a Rental Property Mortgage in Ontario
Getting approved for a rental property mortgage can be challenging, especially if you’re a first-time investor. Here are some tips to help you increase your chances of approval:
1. Improve Your Credit Score
Your credit score is one of the most important factors lenders consider when evaluating your application. If your score is less than 650, take steps to improve it before applying for a mortgage. This might include paying off debts, making payments on time, and reducing your credit utilization.
2. Save for a Larger Down Payment
A larger down payment can help you qualify for a conventional mortgage and may also improve your interest rate. If possible, try to save at least 20% of the purchase price for a down payment.
3. Have a Plan for Generating Rental Income
Lenders want to see that you have a plan for generating rental income. This might include researching rental rates in the area, marketing the property, and finding reliable tenants.
4. Get Pre-Approved Before You Start House Hunting
Getting pre-approved for a mortgage can help you narrow down your search to properties that fit your budget. It can also make your offer more attractive to sellers.
Investing in a rental property in Ontario can be a smart financial move, but it requires careful planning and financing. By understanding the types of mortgages available, eligibility requirements, and the application process, you can increase your chances of getting approved for a mortgage. Remember to do your research, shop around for the best rates, and work with a lender who understands your unique needs and goals.
- What is the minimum credit score required for a rental property mortgage in Ontario?
- A credit score of at least 650 is typically required.
- How much of a down payment is required for a rental property mortgage in Ontario?
- A down payment of at least 20% of the purchase price is typically required for a conventional mortgage. For a high-ratio mortgage, a down payment of at least 5% is required.
- What is mortgage default insurance, and when is it required?
- Mortgage default insurance is insurance that protects the lender in case the borrower defaults on the mortgage. It is required for high-ratio mortgages where the down payment is less than 20% of the purchase price.
- Can I use rental income to qualify for a mortgage?
- Yes, lenders may consider potential rental income when evaluating your application.
- How can I improve my chances of getting approved for a rental property mortgage?
- Improving your credit score, saving for a larger down payment, having a plan for generating rental income, and getting pre-approved before house hunting can all help increase your chances of approval.