Turning Your Home into a Rental Property
By: Julie Jeffery – DLC Elevation Mortgage
You purchased your first home a few years ago. Maybe you recently married and you both own a home. Or you are single and area ready to move to a new home. Congrats! That’s great news. But life has a way of changing – children, pets, transfers to a new city, or a new employment opportunity in another area. You may be ready to move up into a larger home, different neighbourhood, or a higher price point? In some cases, home owners want to keep their current homes, turn it into a rental property and buy a new home. Did you know that it’s possible to do this and purchase a new principle residence with as little as 5% down payment?
First Thing’s First – Talk to an Expert
Connect with a licensed mortgage agent to complete a mortgage pre-approval for your new home purchase. If you do plan to own two homes it’s very important that the details of the mortgage pre-approval for the new purchase are strong – income, credit scores, your debt, and savings or assets are important factors. Your income must be able to debt service the majority of both mortgages. A market letter, written by an appraiser, is a great way to add support to the mortgage application and show a lender that the home can be rented for a specific amount each month. A mortgage agent will quickly and easily be able to advise you if the mortgage pre-approval fits the criteria of lenders and mortgage insurers like CMHC.
The down payment on the new principle residence must be at least 5% but can certainly be more and must be sourced from your savings (bank or investment accounts, TFSAs). Review your personal budget, open a bank account for the rental property and plan ahead to have a surplus – it’s important to always have financial ability to cover the costs of repairs or to pay the mortgage payment should your rental property be without a tenant for a few months.
There may be some tax benefits of owing a rental property. Be sure to obtain the advice of accountant with rental property experience. Review the kind of rental expenses you can deduct on the CRA website! Make you are planning ahead.
Review all of the costs associated with the potential rental property – the mortgage payment, property taxes, utilities, and home insurance. Take a look at the Rentfaster.ca site, set up an account within minutes and use the rental pricing too find out the range of monthly rental income for your home. This tool will help you figure out the potential monthly rental income based on the city, area, and type of rental.
You may love owning a rental property! But if you don’t you want to be able sell the property without incurring high penalties to break the mortgage. Consider either a variable interest rate or a short term fixed rate of one or two years. If you lock into a five-year fixed rate and do decided to sell the property you may be surprised at the penalty to break the mortgage. This is where expert advice is important. Licensed mortgage agents can help you find the right mortgage options for your unique situation – in this case a rental property.
Happy house hunting for that new home! And best of luck owing a rental property. Planning ahead, obtaining expert advice, and understanding your personal financial abilities and goals are the best way to be a successful landlord!
Considering purchasing a home or turning your home into a rental property? Dominion Lending Centres is committed to helping you through this comprehensive process. Dominion Lending Centres has teamed up with Canada’s largest banks, credit unions, trust companies, and financial institutions to ensure you have the best home-buying experience. Contact Julie at DLC Elevation Mortgage and begin your journey today!