If you own or plan to buy a rental property, or you have a legal suite in your home, rental income can help you qualify for a mortgage. But it rarely counts dollar for dollar, and different lenders count it in very different ways. Here’s how it works and how to make it work in your favour.
How lenders count rental income
Lenders don’t count all of your rent. They typically use 50% to 80% of it, to allow for vacancies, repairs and other costs. Then they apply it in one of two ways:
| Method | How it works |
|---|---|
| Add to income (add-back) | A share of the rent is added to your income. The full cost of the property still counts against you. |
| Rental offset | A share of the rent is subtracted from the property’s own costs (mortgage, taxes, heat). Only what’s left counts against you. |
Why the method matters
Here’s a simplified example. You earn $8,000 a month, your own home costs $2,500 a month, and you’re buying a rental that brings in $2,000 a month and costs $2,800 a month to carry.
| 50% add to income | 80% offset | |
|---|---|---|
| Income the lender counts | $9,000 | $8,000 |
| Rental costs the lender counts | $2,800 | $1,200 ($2,800 minus $1,600) |
| Total monthly costs counted | $5,300 | $3,700 |
| Total debt service ratio | About 59% | About 46% |
Same borrower, same property, very different result. Most lenders want this ratio at or below 44%, so the method alone can decide whether you qualify.
A legal suite in your own home
If you live in the home and rent out a legal suite, you may get better treatment. For an owner-occupied home with one legal suite, mortgage insurer CMHC will consider up to 100% of the suite’s rent. Individual lenders often apply their own limits, so this is where shopping lenders really pays off.
Want to add a suite to the home you already own? CMHC’s suite refinance lets you borrow up to 90% of your home’s value after the suite is built, as long as that value is under $2 million, with up to a 30-year amortization. The suite must meet local bylaws and can’t be used as a short-term rental.
Down payment requirements
| Property type | You live there? | Minimum down payment |
|---|---|---|
| House or condo with a legal suite (1 to 2 units) | Yes | 5% on the first $500,000, 10% above that |
| Triplex or fourplex (3 to 4 units) | Yes | 10% |
| Any 1 to 4 unit property | No | 20% |
| 5 or more units | Either | Commercial financing |
Rental properties you don’t live in can’t use mortgage default insurance, which is why the 20% minimum applies. Rates on these are often slightly higher, too.
What helps your application
- Signed leases and a history of rent deposits in your bank account
- An appraiser’s rent estimate if the unit isn’t rented yet
- A legal, permitted unit that meets local bylaws. Many lenders won’t count rent from an unpermitted suite.
- Your T776 tax forms, if you already own rentals, showing two years of rental income
- Clear records of income and expenses
Short-term rental income, like Airbnb, is often not counted at all, or only with a solid track record. Local rules may also limit short-term rentals, so check before you plan around that income.
Other things to plan for
- Vacancy and turnover. Plan for a month or two without rent each year.
- Repairs and maintenance. Many investors set aside 5% to 10% of rent.
- Property taxes, insurance and strata fees. Landlord insurance usually costs more than standard home insurance.
- Your other mortgages. Every property you own counts toward your debt ratios when you apply for the next one.
- Rent-heavy applications. If rent makes up more than half the income you’re qualifying with, some banks price and treat the mortgage differently.
Why work with a broker
Because lenders vary so much on rental income, choosing the right lender can make a bigger difference than the rate itself. I compare how different lenders would treat your rental income and match you with the one that fits your plans.
If you’re also thinking about your own cash flow, see my affordability guide.
Frequently asked questions
Can I use rental income to qualify for a mortgage?
Yes. Most lenders will count a portion of rental income, typically 50% to 80%, from a legal suite or rental property when you qualify for a mortgage.
What is the difference between rental offset and add-back?
The add-back method adds a share of rent to your income. The rental offset method subtracts a share of rent from the property’s carrying costs. The offset method usually lets you qualify for more.
What is the minimum down payment for a rental property in Canada?
A rental property you won’t live in needs at least 20% down. If you live in one of the units, you can put down as little as 5% on a one- or two-unit property, or 10% on a three- or four-unit property.
Does rent from a basement suite count toward my mortgage?
Rent from a legal basement suite can count toward your mortgage qualification. Insurer guidelines allow up to 100% of the suite’s rent for an owner-occupied home, though many lenders count less.
Can I use Airbnb income to qualify for a mortgage?
Some lenders will consider short-term rental income with a documented track record, but many don’t count it at all. Long-term rental income with a signed lease is much easier to use.
Next step
Every situation is a little different. If you’d like to talk through yours, book a consultation or read more about my investment property mortgage service.
This guide is general information, not financial or legal advice. Rules, programs and rates change, so please confirm current details with me or the official sources linked above.