Investing in rental property in Peterborough, ON, can be a great way to build wealth and generate passive income. However, obtaining a mortgage for an investment property has different requirements and considerations than buying a primary residence.

Key Differences for Investment Property Mortgages

1. Higher Down Payment: This is the most significant difference.
   • For a non-owner-occupied rental property (where you won't be living in any unit), you generally need a minimum down payment of 20% of the purchase price.
   • If the property has 2-4 units and you plan to live in one of them (owner-occupied), the down payment can be lower (e.g., 5% on the first $500,000 and 10% on the remainder up to $1 million, or 10% for 3-4 units). However, for a pure investment, expect 20%+.
   • A minimum 20% down payment is always required for properties valued at $1 million or more, regardless of whether you live there.
   • Properties with 5+ units are typically considered commercial properties and would fall under commercial mortgage rules, requiring even higher down payments (25-50%).
2. Mortgage Default Insurance (CMHC, Sagen, Canada Guaranty):
   • If your down payment is less than 20% (only possible if you're owner-occupying a multi-unit property), your mortgage will require default insurance. This protects the lender, not you; the premium is usually added to your mortgage amount.
   • Insurance is generally not required for non-owner-occupied properties with a 20% or more down payment, meaning you might have access to longer amortizations (up to 30 years with some lenders, compared to 25 years for insured mortgages).
3. Rental Income Qualification: Lenders will consider the potential rental income from the property to help you qualify, but they won't use 100% of it.
   • Most lenders will only "gross up" or use a portion of the expected rental income, typically 50% to 80%, towards your qualifying income. This is to account for potential vacancies, maintenance, and other operating expenses.
   • For owner-occupied properties (2-4 units), CMHC may allow up to 100% of rental income for qualification.
   • To prove the rental income, you may need a "market rent letter" from an appraiser or a signed lease agreement from existing tenants.
4. Stress Test: You will still need to pass the mortgage stress test, which means proving you can afford payments at a higher qualifying interest rate (the greater of 5.25% or your contract rate plus 2%).
5. Debt-to-Income Ratios: Lenders will scrutinize your Gross Debt Service (GDS) and Total Debt Service (TDS) ratios.
   • GDS (housing costs vs. gross income) typically should be no more than 39%.
   • TDS (all debt payments vs. gross income) typically should be no more than 44%.
   • Your existing income (employment, self-employment, etc.) and the portion of the rental income the lender considers must be sufficient to meet these ratios.

Requirements & Documents for Investment Property Mortgages

• Excellent Credit Score: A strong credit history and a good credit score (typically 680+ for "A" lenders) are essential.
• Stable Income: Proof of consistent income from your primary employment or self-employment.
• Proof of Down Payment: Documentation showing the source of your down payment funds (which must be non-borrowed and often require showing funds in your account for 90+ days).
• Property Appraisal: An independent appraisal of the investment property's value.
• Market Rent Appraisal/Lease Agreements: To verify potential or actual rental income.
• Financial Statements: For self-employed individuals, 2 years of tax returns and NOAs will be required.
• Purchase Agreement: For the subject property.
• Details of Other Properties: If you own other rental properties, you must provide their mortgage statements, property tax assessments, and rental income/expense details.

Finding an Investment Rental Property Mortgage Broker in Peterborough, ON

Investment properties are highly recommended to be financed with an experienced mortgage broker. They understand the nuances of these mortgages and can connect you with more investor-friendly lenders.

• Mortgage Broker in Peterborough | Mike Cara:

Mike Cara has extensive experience and often works with investors.

• • Address: 398 McDonnel St., Unit 4, Peterborough, Ontario, K9H 2X4
  • Phone: 705.772.7878
  • Website: www.MikeCara.ca

Essential Considerations for Rental Property Investment

• Market Research: Thoroughly research the Peterborough rental market. What are typical rents for the type of property you're considering? What's the vacancy rate?
• Operating Expenses: In addition to the mortgage, factor in property taxes, insurance, utilities (if you're covering them), maintenance, repairs, potential vacancies, and property management fees (if you're hiring one).
• Legal & Regulatory: Understand landlord-tenant laws in Ontario and local Peterborough bylaws for rental units. Ensure the property meets all safety and zoning requirements.
• Cash Flow vs. Appreciation: Decide on your investment strategy. Are you primarily looking for monthly cash flow, long-term appreciation, or both?

Recommendation:

Contact a specialized mortgage broker from above. Provide them with details about your financial situation, the type of investment property you're interested in, and your investment goals. They can provide a personalized assessment, help you understand your borrowing capacity, and find the best lending solution for your investment rental property in Peterborough.