We take calls all the time from clients who want to buy a home with substantial basement suite income, but their bank is either ignoring it, or not treating it seriously.
This video blog explains the difference between authorized and un-authorized suites, and how the various banks will treat that income. It also explains how to make suites authorized, and the different way the banks will look at that income when qualifying you for the mortgage.
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Transcription of the Video Blog:
Hey everybody, it’s Rowan Smith from the Mortgage Centre.
I want to talk today about basement suites and basement suite income. You’ll see them written up in MLS listings or hear them referred to by realtors as “in-law suites” or “mortgage helper” or anything of that nature.
Depending on what municipality you live in, there are different regulations that dictate what you have as being either an “authorized suite” or “unauthorized suite.” While the difference, on a month to month cashflow basis is nothing to you as a home owner, the difference between how the bank will look at this income and use it, if at all, is very important.
If you are in Vancouver, Vancouver has very specific regulations pertaining to fire code: you have to have sprinklers installed in the suites, fire escapes, an electricity panel in a common area and there are many other things. You’ll have to check with your specific municipality to get the regulations that pertain. Every municipality is different. Surrey is different than Vancouver. Vancouver is different than Coquitlam, and etc…
If a city has specified that there are requirements for suites, then you have to either adhere to them, to make it an “authorized suite,” or you have to just rent it out as it is as an “unauthorized suite.”
This isn’t that big of a deal if you don’t require the suite income in order to qualify for the mortgage. On the flip side, if you need that money (meaning, if you had a vacancy for a year, it would be financially distressful) then we need to be very careful on how we structure your financing.
When you are putting less than 20% down CMHC will not allow the use of income from an un-authorized suite. CMHC is a government run organization, and as such, they’re going to make sure that any property than they finance meets the government regulations. Well, we’re not going to have CMHC on the one hand financing a property that doesn’t conform to city regulations when the two are both government organizations.
Now, there IS another mortgage insurer (two others in Canada): Genworth and AIG, and Genworth WILL allow the use of unauthorized suite income. They typically will require a greater degree of paperwork and underwriting: they’re probably going to want a letter of economic rent, from an appraiser, to tell the lender what the suite will realistically rent for in the marketplace. They aren’t just going to take our word for it. They’ll want something on paper, or a lease agreement or something of that nature.
If you are buying in a area and you aren’t sure if there is an authorized-versus-unauthorized issue there: for example, if you go out into some of the outlying areas there isn’t this problem. They have not specified, in some of the smaller towns an municipalities, that you have to have certain things done for the property to be authorized. If you are in the area where some of them, all you have to do is declare it to the city, and pay the slightly higher level of taxes: double water, garbage removal, and that kind of thing, and it is a nominal amount of money. It’s not something that should be preventing you from doing it if you need to get that suite authorized in order to qualify for it.
So if you or someone you know is trying to buy a property using basement suite income, and maybe, for reasons they aren’t clear of, their bank is ignoring that income or is treating it oddly and not really giving them full credit for it, or not helping with the mortgage when, in reality, that (income) is a substantial amount of money, and you feel that it should be given more treatment, then GIVE ME A CALL.
We have a number of lenders that use all three mortgage insurers and lenders that will allow you to use authorized or un-authorized suite income , both, and give it the same treatment. If you are in that situation, give me a call.
It’s Rowan Smith at the Mortgage Centre.