Can I use rental property income as proof of income for a mortgage?
- Thread starter Lewisghjk
- Start date
Rental property inside of Canada or outside?
With big banks, very unlikely.
With mortgage brokers, depends on what your rental income is and how long you've been able to generate what they'll consider to be significant.
It matters to RBC and other banks and credit unions I asked. About 2 years ago, I asked RBC for a mortgage, taking into account net rental income of about USD60,000/yr. from a property in LA, reported and taxed on both sides of the border for nigh on 25 years. The bank told me, in effect, like on "Survivor" - "does not count". Ditto for my self-employment income in a greater amount. They said unless I was considered a regular full-time employee and T4 income earner then "does not count". Did not matter I had earned not less than $60,000 in any one year from that employer for 26 years. All I wanted was a lousy $275,000 to buy another property, for which I had a down payment of $300,000 in cash. My income was over $200k and a net worth of, maybe, $3 million and a credit score of about 800. All they wanted was the T4 income and proof of permanent full-time employment. My wife and I were divorced already, but on good terms and she was willing to help out. I did not mention divorce to the bank. BUT, her employment over the previous few years in a health care position, paying about $60,000/yr., was still categorized as "casual". You know what? Yup, does not count.
So it was full-time, permanent T4 income or bust. Nothing else was regarded as real money. Every bank and credit union on the west coast told me same. So, if you were basically a man of straw, but with a modest T4 income of the right sort, you were good. Okay to be poor, just the right variety. Otherwise, piss off.
Contrast that recent experience with 15 years ago, when building a house off-grid, in the middle of nowhere. You would expect that to be hard to finance, and interest rates were twice then what they were when I applied a couple of years ago. That same RBC gave me $500,000, no questions asked. No tax returns, nothing, except a one-line letter from my same "employer" attesting to my usual income from that source. Times have sure changed. Not likely I'll ever need to borrow money again. Not that I could, anyway. I now know I am a pauper. Maybe that's why my wife's PR application has not been approved. Probably I'll get a PFL advising me to make an assignment in bankruptcy and lay aside any high horse notion of bringing to Canada a spouse I can ill-afford.
I sold some part of an investment to get the $275,000. Turn out it was a good thing. I sold some logs off lands I purchased intending to harvest much later. Timber prices for what I was selling (and for most species) were better then. I still have that land and most of the standing timber. Not sure when prices will recover, if ever. And now, every year there's an increased risk of losing it to fire, thanks to climate change. So, I suppose it was good that I sold what I did, when I did. Thanks RBC.
I have written all of this because, given my experience, I have to wonder about how new Canadians might fare in buying housing. I always considered myself very creditworthy and never had an issue borrowing over many years. But, lenders now regard me as a bum. For those just arriving, how will they satisfy the withering scrutiny to which I suspect they will be subjected? Those few who arrive with suitcases full of cash will be fine. But, given now that the price of a mailbox in many parts of Canada is in the range of $1 million, I fear many will be locked out, even though they are hard-working, solid types, who should obtain credit without selling their kids.
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