Buying a Home with a Basement Suite – Some Details

Buying a home with a basement suite can be a powerful way to increase affordability, improve cash flow, and build long-term wealth — but not all suites (or lenders) are treated the same. If you’re considering a home with a suite, here are four important things to think about before you buy.

1) The type of suite matters.

If a suite is legal (fully permitted and meets municipal bylaws), all lenders will accept the rental income for qualification. If it’s not legal, make sure it’s at least fully self-contained, meaning it has its own entrance, its own kitchen, and its own bathroom. Many lenders will still consider rental income from these types of suites, but not all.

2) Your lender choice can change how much you qualify for.

Different lenders treat rental income very differently. Some will only allow 50% of the rental income to be used, while others allow up to 100%. Some lenders make you debt-service property taxes and heat, while others do not. These differences can have a huge impact on your approval amount, which is why working with a broker who understands rental income policy is so important.

3) Whether the suite is already rented or not DOES matter.

If the suite is currently rented, you should obtain a copy of the lease, make sure the purchase contract clearly states that the tenant is staying, and ensure the monthly rent amount is documented. If the suite is not already rented when you purchase the home, lenders will typically require an appraisal to confirm market rent. It’s very important to be conservative about what you expect the suite to rent for — especially if that rental income is crucial to comfortably affording the home.

What about adding a basement suite OR Mother-in-Law suite to the home I am buying?

Great idea, adding a suite to the home that you are buying AND at the same time, using the expected rental income from that same suite to qualify for the mortgage IS possible. There are a few lenders that allow this to happen and we do deals like this all the time. (No shortcuts though, as the final step is a final inspection and also providing the lender a copy of the occupancy permit from the City before the funds can be released.

Obviously there are some details involved but adding a suite and using the expected rental income to qualify for the mortgage is a huge helper for buyers looking to push a bit higher and get a “mortgage helper.”

Mortgage Mark Herman, 1st time home buying mortgage specialist