But with the changes in the rules for insured mortgages, the process for getting a rental property mortgage now requires more money down and more planning in advance to qualify for.
The market for residential home mortgage programs has moved from being able to acquire rental properties with no more than 5% down at closing to now the minimum institutional mortgage either insured or uninsured requiring 20% down.
There isn’t a whole lot any investor can do about the available mortgage leverage they can obtain for the lower mortgage rates, but they can find some flexibility among the different programs with respect to the way repayment is assessed and qualified. In general, mortgage lenders have moved from allowing 80% of the rental receipts to be applied to the repayment assessment to around 50%.
But 50% is not a hard and fast rule across the board and there can be some flexibility between lenders, depending on the strength of the properties and the other key elements of the application.
There is also the potential for bank or institutional lenders to allow a certain amount of vendor financing to be in place to further increase the leverage that can be obtained when trying to acquire a rental property.
Private mortgage options also need to be considered to get acquisition transactions closed, even if there may be a reduction in short term profitability. With private lenders being less concerned about repayment assessment, it may make sense to purchase the rental property with private money and then work towards getting it refinanced in one or two years time.
And with mortgage leverage on rental properties going down, there’s likely going to be more deals on the market as the change in mortgage qualification rules will eliminate many potential buyers who will not have the resources to put down higher down payments.
So the keys to being successful in the Toronto rental property financing game is to start the process early, allow for sufficient time to get the financing in place, and select an experienced mortgage broker to help develop and implement rental property financing strategies that fit your requirements and resources.