The Crown corporation, which controls a majority of the mortgage default insurance market in Canada, announced changes to its rules Monday and effective Sept. 28 which are aimed at boosting affordable housing.
A background document sent to lenders and obtained by the Financial Post suggests the change is aimed at what CMHC sees as a significant part of the housing market.
“Many municipalities across the country now formally recognize secondary rental suites as a source of affordable housing,” CMHC wrote in its document intended for industry partners. “Rents in secondary rental suites are often lower than those for apartments in purpose-built rental buildings.”
The changes from CMHC would allow homeowners to count the income from their secondary units when qualifying for a loan, something that would seemingly bring more people into the housing market.
The Crown corporation has suggested this would target two unit owner-occupied homes and would likely include basement rental units, in-law apartments and garden suites known as laneway homes. It suggested, in its document to industry players, secondary apartments usually are self-contained with separate kitchen, sleeping and bathroom facilities.
One key issue will be whether the units are legal. CMHC only recognizes units that are legal or conform to local municipal standards. The Crown corporation says that it’s up to lenders to exercise judgment, when it comes to borrowers proving the units are legal.
Homeowners with less than a 20 per cent down payment and borrowing from a regulated financial institution must get government backed mortgage default insurance. Even financial institutions not regulated by Ottawa, like credit unions, must abide by CMHC rules to be covered by the government backing.
Under the new rules, 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 annual principal, interest, municipal tax and heat for the property including the secondary suite must be used when calculating the debt service ratios.
Currently legal units can now only count 50 per cent of the income from legal rentals for calculating their household income which determines how much they can borrow.
Original Article http://business.financialpost.com/personal-finance/mortgages-real-estate/cmhc-announces-new-rules-to-make-it-easier-for-homeowners-to-rent-out-property