What is Rental Income?
Rental income on an application, is income which is used to help qualify for a mortgage application. Each bank, credit union & lender has a completely different guideline for HOW MUCH income they will allow and how they ask for you to confirm it. The GOOD NEWS is that we were with so many lenders as opposed to working with one bank you have OPTIONS!
How to Verify Your Rental Income
T1 General - This is the form you fill out each year to complete your taxes, if you are claiming rental income there will be a section of your tax return called "Statement of Rental Income" which will be filled out. Most lenders will accept this as proof of rental income.
Schedule A (Also known as Market Rent Letter) - In this case an appraiser will consider the property, comparable properties in the area along with comparable rentals' to confirm what the property is LIKELY to rent for. This is acceptable normally for basement suite income and in some cases for purchasing or refinancing a property. This is much less common than using your tax return.
Lease Agreement - This is the agreement you sign with a tenant to rent your property. Most lenders which require the T1 Tax Return will also require a CURRENT dated and signed lease agreement.
Most Common Uses of Rental Income
Basement Suite Income - A very common way to increase your mortgage qualification as well as to make your cost of living much lower with the rental income helping to pay off your existing mortgage! A KEY with basement suite income is that although it does not need to be a "legal" suite it must have all of the other factors, for example: It's own entrance, bathroom, bedroom & kitchen.
Rental Property Income - If you are thinking of buying a rental property or have other rental properties, it is extremely important to plan ahead for your next purchase. With a rental property there are a few different ways to qualify an applicant. In most cases the goal is to remove the rental properties mortgage from the "liability" column in order to to help the applicant qualify based on their income alone. In certain circumstances you may even add back a "surplus" as income! There are so many ways to calculate rental income, speak to us first!
Converting a Property To a Rental - Should you keep your property and buy a rental, or move into another and turn yours into a rental. There is a big opportunity for first time investors to get into the market by actually taking EQUITY out of their existing home (up to 80%) and using this money to buy a primary residence for themselves.
However you do it, the key is preparation and working with a professional who not only understands your goals but has access to many options!
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What To Do Next? 😎
- Reach out to us If you are THINKING about buying or Refinancing
- Send This Info & Video to everyone you know who is buying or selling or maybe refinancing Remember: they may be thinking of a refinance, investment property OR know a friend who is currently thinking of buying.
- Send them our way and we will give them an estimate of their before and after rule pre-qualification.
- Contact us early to get ahead of the game, even if your mortgage is not up for renewal until next year.
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