Finance the Entire Cost of a Rental Property
When we first begin our financial education we are hungry for knowledge. We read everything that comes our way on the topic of real estate; books with titles like “Nothing Down” or “97 Tips for Real Estate Investors.” One consistent theme throughout all these texts is the importance of using leverage. With a recent change in the CMHC rental property program, some lenders are making it easier to do just that.
There are two mortgage lenders who will now finance 100% of the cost to buy a rental property. There is no application fee to do this and they will even offset the cost of the house purchase by calculating in market rent for the new property and adding it to your income.
Concerned about cash flow? You can get a 40 year amortization on your new property to reduce payment size. Sounds pretty good doesn’t it? Let’s take a look at some of the expenses.
First, CMHC isn’t going to let you off the hook that easy. There is an expense for this purchase; an added premium which you can also make tax deductible since you are financing a 100% of the property’s value. The interest on the mortgage is also tax deductible. Talk to your accountant about the possibilities.
The lenders are offering the current best interest rates to secure rental properties. With the recent cut in the prime lending rate and another cut planned for March 4th, we are suggesting that most of our clients go with an adjustable rate mortgage for now. In fact, a recent Globe and Mail article predicted that the Prime Rate in Canada could drop as much as 1.25% in 2008, but we will have to wait and see.
So what does it take to qualify to get 100% financing on a rental property? First, you need good credit. This means a minimum beacon score of over 680 for all applicants. Second, you have to be able to prove income. If you are self-employed the lender is going to want to check your past two years notice of assessment, company financials, and they want to confirm that you have been in the same line of work for at least 2 years.
As well, please keep in mind they will only finance single family units and duplexes at 100%, triplexes and fourplexes they will finance up to a maximum of 90%. To refinance a rental property they will go up to 95% loan to value.
Contact Jerry Schindel at 403-287-0174 or jerry.schindel@migroup.ca or visit us on the web at www.calgarymortgageagent.ca.