Using Rental Income to Qualify for a Mortgage

Have rental income—or buying a property with rental potential? Understanding how lenders count that income can help you qualify for more mortgage and make better investment decisions.

How Lenders View Rental Income

Lenders typically apply a "haircut" to rental income:

Standard approach:
Use 50-80% of gross rental income for qualification.

Why not 100%?

• Vacancy risk
• Maintenance costs
• Non-payment risk

Different lenders use different percentages.

Types of Rental Income

Existing rental property:
Income from properties you already own.

Subject property rental:
Income from units in the property you're buying (duplex, triplex, etc.).

Suite potential:
Some lenders consider rental income from legal basement suites.

Proving Rental Income

For existing properties:

• Signed lease agreements
• T776 (rental income tax form) from last 2 years
• Rental income history on tax returns

For new purchase:

• Signed lease if tenant in place
• Appraiser's market rent estimate
• Comparable rental listings

The Rental Offset Calculation

Traditional approach:

Rental income partially offsets rental property expenses in your debt ratios.

Example:

• Rental property mortgage: $2,000/month
• Rental income (at 50%): $1,000/month credit
• Net impact on TDS: $1,000/month (not $2,000)

This makes qualifying with rental properties easier than if only the expense counted.

Add-Back Programs

Some lenders offer more generous calculations:

100% rental offset:
Lender uses full rental income to offset property expenses.

Rental add-back:
Rental income actually adds to your qualifying income.

These programs can dramatically increase borrowing power. Ask your broker about options.

Owner-Occupied Multi-Unit Properties

Buying a duplex or triplex where you live in one unit:

Down payment:

• 5% for owner-occupied (CMHC insurable up to 4 units)
• Not considered investment property

Rental income:

• Suite rental income can help qualification
• Often 50% of estimated rent counted

Benefits:

• Live for less (tenants help pay mortgage)
• Build equity in investment property
• Lower down payment than pure investment

Investment Property Qualification

If you're not living in the property:

Down payment:
Minimum 20% (no CMHC insurance for investment)

Rental income calculation:
Typically 50-80% of gross rent

Stress test:
Still applies to the mortgage payment

See our investment property mortgage guide for complete details.

Documenting Rental Income

Best practices:

• Keep all lease agreements current and signed
• Deposit rent checks (paper trail)
• File rental income on tax returns
• Track expenses separately
• Get regular appraisals for market rent updates

Common Mistakes

Not declaring rental income on taxes:
Lenders want to see it on your NOA. Unreported income doesn't count.

Informal arrangements:
Cash payments from family without leases are hard to document.

Overestimating vacancy rates:
Lenders know if your estimates are unrealistic.

Mixing personal and rental finances:
Keep rental property finances separate.

FAQ

Q: Can I count Airbnb income?
A: Some lenders accept it, but many don't. Documentation is challenging, and income is less predictable.

Q: What about room rentals in my home?
A: Generally not counted unless you have a legal secondary suite with separate entrance.

Q: Do I need existing tenants to count rental income?
A: For purchases, lenders can use appraiser's market rent estimate. For refinancing, you typically need actual lease and payment history.

Q: How does rental income affect my GDS and TDS ratios?
A: Rental income provides a credit that partially or fully offsets the rental property's carrying costs in your ratio calculations.

Q: Can I use future rental income from a property I'm building?
A: Generally no. Lenders want actual income, not projections. Construction and completion must come first.

What's Next

Rental income can be a powerful tool for qualification. Learn about investment property mortgages or explore how to use your home equity to acquire rental properties.