24 Oct

3 Ways to Purchase a Rental Property


Posted by: Adam Sale

3 Ways to Purchase a Rental Property

In this write-up I’ll briefly discuss 3 different approaches for financing a rental property, and the biggest issue clients face

It is assumed if someone is purchasing a rental property, they already own their primary residence. This is a second property purchase. 

The biggest issue clients face when purchasing a rental property is ensuring their income will support the monthly payments required with operating two properties.

Yes, receiving rental income will help support the additional payments, but will it fully cover them? Every lender approaches rental income differently. Make sure you are working with a knowledgeable broker to maximize your rental income’s purchasing power.

Conventional Mortgage – 20%+ Down-Payment

Purchasing a rental property with a conventional mortgage (20% down-payments) will give you the greatest amount of flexibility in finding lenders with favorable rental programs. Conventional mortgages are not required by law to follow CMHC’s strict lending guidelines, thus creating opportunities for lenders to develop niches in the marketplace.

For example, some lenders aggressively target the condo market by removing monthly strata payments or property tax payments from the income-qualifying equation.

Slight variations between lenders, such as the one mentioned above, have a significant impact on your purchasing power. It is estimated for every $500 in monthly payments the stress test decreases your purchasing power by approximately $80,000.

Recently, some provincial lenders are aggressively growing their residential mortgage share by offering their own “relaxed” version of the stress-test.

Refinance Option

One of the easiest ways to purchase a rental property is by refinancing one’s primary residence to purchase the new property in an all-cash deal.

This option is straightforward, and can qualify the homeowner for their new mortgage by only adding their primary residence’s housing costs into the income-qualifying equation.

If adding rental income to the income-qualifying equation is necessary for the purchase, using the conventional mortgage option may be a better solution.

High-Ratio Mortgage – Less than 20% Down-Payment

Purchasing a property with less than a 20% down-payment is tricky, but do-able if you have solid income to support CMHC’s rigid lending guidelines.

High-ratio mortgages are designed for owner occupied properties. In order to perform this transaction requires you to move from your current property, and make the new property your principal residence.

So, what makes a high-ratio mortgage transaction involving a rental property more difficult to complete?

When income-qualifying a client for this type of transaction, we are required to follow CMHC’s “net-rental income” approach for adding rental income into the calculation. This equation is not favourable, and typically creates a negative net rental income which decreases the clients’ purchasing power.

“Net rental income = gross rents – operating expenses.”

To discuss any of these options in greater detail, please contact me at adamsale@dominionlending.ca, or by phone at 778-215-4121.

Thanks for reading!

16 Oct

Purchase Plus Mortgage Program


Posted by: Adam Sale

Purchase Your Home and get an Additional $60,000 for Renovations


Below is a quick write-up I did on the Purchase Plus mortgage program, who it is designed for and how it operates

If you're interested in purchasing a property and then renovating it to increase its live-ability and value, then the Purchase Plus Mortgage program may be your ideal mortgage solution.

When applying for a mortgage, lenders typically lend based on the homes current appraised value. However, the Purchase Plus program allows lenders to lend on the future value of the home, after the necessary improvements are performed.

This mortgage program allows a maximum of $40,000 in additional funds to be put towards improvements on high-ratio mortgages.  On conventional mortgages some programs will grant a maximum of $60,000 for improvements.

How it works?

To take advantage of this program, borrowers will first need to qualify for the whole mortgage amount including the additional improvement portion. Once they’re qualified, the process of purchasing a home is relatively the same except for one additional step. Lenders require a satisfactory quote outlining the scope of the work and the cost estimates.

With a satisfactory quote, the home appraiser will generate a report with 2 values. The current value of the property, and the future value.

When it is time to purchase the property, the lender will advance the funds for the current property’s value to pay out the seller. The lender then retains the funds for the future value of the property until construction is completed.

During the renovation phase it is the home owners responsibility to pay for the completed work. Once the project is 100% complete, the appraiser will review the project and inform the lender of the new property value. With a satisfactory report the lender will then transfer the remaining funds to the borrower.

Speak with a Contractor

Are you unsure of what your potential project will cost, or where to find a reputable contractor? I highly recommend Greg Baarts of GreNor Homes. His years of experience and excellent reputation will ensure your project completes on time. 

Greg Baarts

GreNor Homes | www.grenorhomes.com

604-505-4574 | Greg@grenorhomes.com 


Find out if this Program is right for You

If you are interested in more information on the Purchase Plus option, or would like to discuss possible mortgage scenarios please send me an email, or call me at 778-215-4121.

3 Oct

How to Purchase Property in the U.S.

Mortgage Tips

Posted by: Adam Sale

Living the Goodlife

Have you ever wondered about purchasing property south of the border to get away from our wet winters? Most of us have! Recently I spoke with an accountant who asked “what is the best way to receive financing for purchasing a property in the U.S?”

There are a couple financing options for U.S non-residents, each with their pros and cons.

Disclaimer: Dominion Lending Centres is licensed to arrange mortgages in Canada only.

Option 1: Refinancing Canadian Property

The easiest way to receive financing for a property is to refinance one’s property in Canada and deposit the new money into a bank account. Of course, everyone’s situation for purchasing a property in the U.S. is different. This scenario best applies to persons who own property, or size-able investments, in Canada.

Key benefits of purchasing a U.S property in this fashion

a. Deal with the U.S/Canada exchange rate once – at time of purchase. This allows the buyer more control when taking advantage of exchange rates when they are favorable.

b. Best possible rates, refinancing your Canadian property with a Canadian lender is not considered risky, so lenders will give you their best rates and mortgage payments are in Canadian dollars.
Pro tip: Refinance your property 3 months prior to purchasing your property to satisfy U. S’s anti-money laundering laws. Keep the new funds in a separate bank account and wait until the exchange is favourable, then shop for the best possible exchange rates on large sums of money.

For preferred rate Inquiries, contact Taylor Swaffield at the Vancouver Bullion Exchange taylorswaffield@vbce.ca

Option 2: Get a U.S. Mortgage in Canada

There are options in Canada through TD, BMO and RBC to receive a U.S mortgage. These big banks have ties in the U.S. and each one will lend in specific States. The mortgage process is similar to obtaining a mortgage in Canada; however, it is significantly longer. Expect closing to take approximately 45-60 days. The typical income documents are required to qualify for the mortgage, as well as credit bureau report and a home appraisal.

One thing to note, monthly mortgage payments are in U.S. funds. This makes borrower’s vulnerable to exchange rate fluctuations. Receiving a U.S mortgage may be advantageous for Canadians working in the U.S receiving U.S funds for payment, or for vacation rentals.

When performing any large transaction south of the border, speak with an accountant specialized in Canada/U.S. Taxation to ensure you remain compliant with IRS and CRA rules.

Bank Websites:
Bank of Montreal
Royal Bank of Canada
Toronto Dominion Bank

For more information on mortgage options please contact me at 778-215-4121, or adamsale@dominionlending.ca

Adam Sale
Vancouver Mortgage Broker
First Pacific Mortgage DLC