Rental Offset – How It Can Work For You

There are a few different scenarios where using a rental offset can be hugely beneficial to you as a buyer. Here’s a quick breakdown:

Vickie Cugnet

April 5, 2023

Did you know that if you own a property or include a legal basement suite into your new build, you can use the potential rental income towards getting approved for a new mortgage?

This is called a rental offset.

This can give you the flexibility to qualify for the property you want to purchase, if out of reach otherwise, invest in a second home or say yes to a more expensive home than you originally thought was possible.

There are a few different scenarios where using a rental offset can be hugely beneficial to you as a buyer.

Here’s a quick breakdown:

Scenario 1: Buying a New Home

You’ve purchased a new home and need to sell your current home before taking possession, unfortunately, your existing home has not sold.

Your mortgage lender can potentially use the rental income from your existing property to approve you to carry both homes.

This will give you more time for your current home to sell and ease the stress of your pending possession date.

You can also use this tool to help get approved for a mortgage up front when starting to building a new home as protection in case you are unable to sell your existing home closer to move in. In instances where you’re approved with rental offset, you still have the ability to speak with your lender about selling your home prior to possession if this is preferred but it is nice to have that back-up.

Scenario 2: Buying a Second Property

You own a home but want to purchase a second property and don’t think you can get approved for a new mortgage.

Lenders will use the potential rental income from your current home towards your mortgage approval giving you the ability to keep both homes and own a rental property!

This has benefits that allow you to own two homes with one bringing in rental income to help offset your mortgage on the one property or both, depending on the market rental rates.

Scenario 3: The Income Suite

If you’re building a new home, you could consider adding a legal basement suite. In doing this, your lender will be able to use the rental income from the suite towards your qualifying income and get you approved for more.

Now, let’s talk numbers.

If your potential rental property would rent for $1800/month then your lender can add $21,600 to your qualifying income for a mortgage. You do not even need to have a rental agreement in place.

This is called a 100% rental offset.

Some banks will only provide an 80% rental offset so be aware of this, it’s also important to note that not all lenders will use a 100% rental offset so be sure to ask when considering your mortgage provider.

This is a win, both being approved for a home that meets your needs, but also having the potential of an ongoing mortgage helper once you move into your home.

As an added bonus, including a basement suite provides greater resale potential in the future.

Rental offset is a great option if you’re looking at investing further into real estate and want to add a rental property to your portfolio, or if you’re wanting to purchase a new home but haven’t sold your existing one yet. You can also use rental offset to provide that little bit extra you need to build the house of your dreams by including a basement suite.

About the Author: Vickie Cugnet

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