Mortgage Strategy For Investment Properties
By Lin Miller
Investment properties have historically been a safe and reliable investment strategy for many people. Some have purchased investment properties solely on appreciation value. Most however, purchase investment properties with the strategy of having a renter pay most or all of the mortgage.

The U.S. housing crisis and mortgage meltdown has forced lenders worldwide to review their lending practices and here in Canada is no different. We have always had safer lending policies and guidelines than the U.S., however, over the past couple of years we loosened our guidelines somewhat to allow more Canadians to purchase investment property. That is changing rapidly and we have adopted more stringent rules.

Although you can still technically purchase an investment property without a down payment, most lenders like you to have 10% - 25% of your own money going into the purchase of an investment property. Their rationale is if there is a downturn in the market or economy, an investment property will be much easier to default on than an owner occupied property.

The big difference however is being able to purchase an investment property with a “stated income” mortgage. A stated income mortgage is one where you don’t need to prove your income if you are in business for yourself. We simply “state” the income needed to make the TDSR (total debt service ratio) work. Stated income mortgages are popular with business owners because we know they write off as much as possible to pay the least amount of income tax but this lowered taxable income meant they didn’t qualify with traditional lenders.

Stated income mortgages are now mainly used if the owner is going to live in the unit. Stated income deals are still available with non-traditional lenders but you will find the rate to be substantially higher.

Another item lenders don’t like to see are properties that are going into a “rental pool”. This situation is commonly found at ski resorts or golf resorts or at condo complexes in destination cities. Again, the lender rationale is rental pool properties are more likely to suffer from multiple renters coming for just a few days. It is fine if you want to find these renters yourself, just don’t let the lender see “rental pool” on the contract of sale or MLS.

If any of the above has raised a question, don’t hesitate to give me a call and I will be delighted to assist. Or go to my link to find out more.

http://www.conexa.ca