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Buying a Home with a Suite is About to Get a Lot Harder

Rent is going to have to increase by 400% once the new rules take effect April 19. At least that is how it looks when you do the math. Flaherty announced changes to Mortgage Rules February 16 and one of the rule changes has to do with rental income.

Rental Income is being recalculated. Under the old system we could deduct $800 of rent for every $1000 of rental income. Under the new system we can only deduct approximately $200 per $1000 dollars of rent.

For a buyer to qualify for the same amount of mortgage after the changes the rent has to increase to $4000 a month or the purchase price has to lower by almost 20%.

Bob & Cindy

Example: Bob and Cindy have good credit, monthly debt $300 of a month and $50,000 of family income. They are buying house with $1000 of suite rental income.

When does this take effect?
April 19, 2010 is the official day of the changes. However, anyone who has entered into a contract prior to April 19^th will be qualified under the old rules.

Does this apply to in-law suites too?
Yes. This will apply to legal and illegal suite rent. The only possible exception is if a borrower has 20% down.

What if a borrower has 20% down?
If a borrower has 20% down there may be some exceptions. Exactly how this is going to play out will be more clear once the changes take effect. (I will keep you posted)

What does this mean?
If you have first time buyers who are considering buying and will be relying on rental income get them out house hunting now.


Oh, and get them pre-approved with someone who knows how all this stuff works while you are at it.