New CMHC rules make it easier for some homebuyers to include rental income in mortgage application

Changes to mortgage rules mean that some home buyers in Metro Vancouver's hot housing market may soon get a break when it comes to their loan application.

Currently, home buyers with a deposit of less than 20 per cent are required to have their mortgage loan application approved and insured by Canada Mortgage and Housing Corporation (CMHC).

Starting this fall, CMHC plans to change the rules for those buyers to allow them to include projected income from secondary suites when they apply for a loan.

"CMHC will consider up to 100 per cent of gross rental income from a two-unit owner-occupied property that is the subject of a loan application submitted for insurance," the new rules state.

Additional conditions when home buyers wish to use these new rules include:

• The income must have been sustained over at least two years.
• The income amount must not exceed the average of the past two years, to address income fluctuations, smooth out cyclical trends and unexpected events such as vacancies.
• Up to 100 per cent of gross rental income may be used only where prospective borrowers can demonstrate a strong history of managing credit generally considered to be a minimum credit score of 680.

The rule change is aimed at boosting affordability, although some experts say the new regulations could actually further heat up housing markets in Toronto and Metro Vancouver.

In the Vancouver area, the changes would most likely be felt in suburban areas, including the Fraser Valley, where single family homes are still within reach of average first-time buyers.

Can purchase bigger properties

Professor Tom Davidoff of the University of British Columbia's Sauder School of Business said the changes will likely appeal to young families, allowing them to buy bigger properties with suites that can later be used by the owner.

 "When the family is larger, they can toss out the renters and occupy the space themselves without having to move," Davidoff said.

Tsur Sommerville, also with the UBC Sauder School of Business, said the CMHC change will have more impact than the Bank of Canada's recent prime rate reduction.

"For someone who is looking to buy a house with a basement suite that was generating $1,200 in rent, they can borrow an additional $72,000 to purchase that unit because of that change," Sommerville noted.

Real Estate analyst Don Campbell says this policy change will mean a bigger boost in suburban markets and predicted that the population in these regions could rise along with the demand.