Owner occupied duplex vs. Rental duplex
- Owner-occ: Minimum down payment is 5%.
- Rental: Minimum down payment is 20%.
- 50% of rental income can be used to qualify.
If you are considering buying a duplex for rental, or you are planning on living in one unit...
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Duplexes are properties that are set up as two separately contained living units. They can be side-by-side or one unit on top of the other. Either way, a duplex is one property that has two self-contained units. There are different qualifications for the mortgage depending on the purpose of the of the property.
Owner-occupied duplex rental property
There really isn't a lot of difference when purchasing a duplex as an owner-occupied rental property over one that will be used solely as a rental property. The only real difference is the minimum down payment required to purchase the property. With an owner-occupied duplex rental, the minimum down payment is 5% from the purchaser's own resources (you cannot use borrowed money e.g. unsecured lines of credit).
Duplex rental property (non-owner occupied)
As mentioned above, there really isn't a lot of difference between the two purchases (owner-occupied vs. non-owner occupied). When purchasing a duplex rental that will be used solely as a rental property, meaning the owner will NOT be occupying one of the units, the minimum down payment is 20%.
As with any rental property under 4 units the borrowers/purchasers are allowed to use the rental income (from the units that are rented) to help qualify for the purchase. Now, when using rental income it is limited. You are only allowed to use up to 50% of the rental income to qualify for the mortgage.
The qualifications work the same as any mortgage. First the bank will look to see if your income (including 50% of the rental income) will be sufficient to carry the loan. The second thing they will do is look at your credit to see if you have a history of decent credit repayment. Third they will look at the property and it's location to see if it is something that they want to lend money on. Once all that is complete, the deal will be sent to the insurer (CMHC, Genworth or Canada Guaranty) if there is less than 20% down. Once the insurer approves the application the lender will then send out a conditional commitment (i.e. you must still verify the information provided). If the mortgage is going to be conventional, meaning more than 20% down) they will send out the conditional appraisal at that time but this will be subject to an appraisal.
Why you should deal with Jim Thornton for your next rental property mortgage
I've been in the mortgage business since 2004 and have been in the financial industry since 2002. I have closed many, many, many mortgages for rental properties. I'm familiar with the lenders that are interested in rental properties and I know their guidelines and how to "get the deal done". If you are considering purchasing a duplex rental property, call me today at 1-866-257-0158.