CMHC Aims to Facilitate Affordable Housing Options
By Lucas on Jul 29, 2015
The Canada Mortgage and Housing Corporation (CMHC) just announced a change to the Homeowner Affordable Housing Flexibilities, increasing the amount of gross rental income that can go towards qualifying for a mortgage to 100%.
Who does this effect?
The change will take effect September 28, 2015. The idea is to encourage and support affordable housing throughout Canada. Currently, only 50% of rental income can be counted towards a mortgage loan, so the increase will allow those who plan on having rental income to increase their household income when applying for a loan.
This isn’t a huge change to mortgage loan rules, so we don’t foresee this making a strong impact in the grand scheme of things, but it could definitely create some new opportunities for homebuyers looking to purchase low-rise homes in some downtown areas.
In Toronto and the GTA, there aren’t that many homes in the suburbs with a legal secondary unit. The majority of low-rise homes that have secondary units are usually located downtown or closer to downtown, and they are usually basements or top floor units.
As you have probably heard, the average price of a detached home in Toronto’s resale market is over $1 million. Clearly, this is unaffordable for a first-time buyer, and odds are, it will continue to be unaffordable even if the buyer plans on renting out the basement and putting 100% of the rental income towards qualifying for the mortgage loan. What we’ll probably see are a few more end-users sacrificing space to live in a low-rise home in or near downtown Toronto, and then many prospective first-time buyers will likely rent out the new secondary units that hit the market.
The Toronto Real Estate Board (TREB) announced recently that listings cannot keep up with the strong demand, so we’re not sure how these new rules by CMHC will affect the market. The goal of the increase seems to be to make homes with secondary units more affordable, thereby bringing more affordable rental units to the market, but that doesn’t really work if there aren’t more listings in the resale market.
The secondary unit could also be a loft space, as long as it has its own entrance.
Affordable Housing
There are a few conditions included in order to put 100% gross rental income towards the mortgage loan:
- Existing secondary units must have two years of steady rental income, and the rental income claimed cannot exceed the average of the last two years.
- New rental units must be appraised to determine potential income.
- It must be a legal rental unit with its own separate entrance.
- The two-unit home must be owner-occupied.
- For owner-occupied homes that have three to four units, or unoccupied homes with one to four units, only the net rental income can be used (gross rental income after expenses deducted).
- Owner must have “a strong history of managing credit,” with a minimum credit score of 680.
Time will tell!
