What is a Mortgage Helper and How Can it Help me Afford a House?
The cost of purchasing and then maintaining a house in Canada seems to be constantly on the rise. With the price of some single family detached homes in places like Vancouver and Toronto significantly over 1 million dollars, it’s no wonder the average Canadian is struggling to save up the required 5% down payment, let alone the suggested 20% down payment (more on saving for a down payment here).
First-time homebuyers are often the consumers who are most affected by the rising cost of housing in Canada. This means that these buyers have to look for alternative strategies to help them enter the real-estate market. Mortgage helpers, often referred to as secondary suits or rental suites, are a great way for first-time homebuyers to get the extra income they need to purchase the homes they want.
Let’s take a more in-depth look at mortgage helpers and how they can help you get your foot in the door of the Canadian real-estate market.
What is a Mortgage Helper?
As we discussed above, a mortgage helper is a rental suite in which the income that you’ll receive from it can be used to apply for a mortgage. The main point of a mortgage helper is to help consumer pay off their mortgage quicker. But, they are also often used to help those who need a little bit more income to afford a house in a slightly more expensive area. When you apply for your mortgage you’ll need to provide two years worth of rental data to determine the average rental price in your area for a secondary suite. You’ll then declare the rental income with your own income and hopefully get approved for a larger mortgage.
In past years, homebuyers were only allowed to declare 50% of the rental income that they would make off of a secondary suite to help them get approved for a larger mortgage. This year the Canada Mortgage and Housing Corporation (CMHC) changed the rules and potential homebuyers can now declare 100% of the rental income when applying for a mortgage.
Keep up to date on other major changes to the Canadian housing rules. Read here.
Creating a Secondary Rental Suite
For a rental suit to qualify as a mortgage helper it must comply with a variety of rules and regulations. The unit must be self-contained within your house and include its own kitchen, bathroom, living areas, and its own separate entrance. There must be proper ventilation and sound-proofing and a sufficient number of windows. Your house must also be zoned to allow for a secondary rental suite. If your house and secondary suite do not meet all the necessary qualifications, you will not be able to declare the income you’ll collect from renting out the unit to help get approved for a mortgage.
As a side note, not all cities and municipalities allow for secondary rental suites. It’s important that you research your area before you make a final decision about using a secondary suite to help get approved for a mortgage. For more information on this topic, check out the CMHC’s website.
Secondary Rental Suite Pros
There are two major advantages to using a secondary rental suite as a mortgage helper and, more often than not, they outweigh the variety of cons. Here are the two key reasons why a secondary suit might be exactly what you need to afford the home you’ve always wanted:
- You’ll be able to use the income you’ll make from the rental suit to get approved for a larger mortgage so that you can afford a larger house or a house in a more expensive or competitive area (read this article for more information on how to shop for a mortgage).
- You’ll be able to pay off your mortgage sooner and then own your house outright.
Secondary Rental Suite Cons
Dealing with a rental suit in your home will not always be easy and as the owner, you’ll be responsible for all repairs, maintenance, and financial issues. Here are a few of the cons that you should reflect on if you’re considering using a mortgage helper:
- You’re responsible for all repairs so if you have no idea how to deal with a plumbing or electrical issue you’ll need to pay to have someone do the work for you.
- If you’re renters stop paying rent, it’s up to you to deal with them.
- If you’re approved for a mortgage based on receiving a specific amount of money from a rental suit each month and you’re unable to find someone to rent out your suite, you could end up with serious financial issues (are you house poor? Click here).
Keep in mind that while a mortgage helper can be used to get approved for a larger loan, it’s important that you do not financially overextend yourself. It’s important that you’re as realistic about your financial situation as possible. Taking on a mortgage that is significantly too expensive for you to handle, will more than likely result in serious money problems.