CMHC to Change Their Underwriting Policy for Dwellings with Secondary Suites

CMHC has announced changes to their underwriting policy that will make it easier for some homeonwers to qualify for a loan

Who Does it Affect?

The changes affect anyone looking for a mortgage on a dwelling with a legal, secondary suite. The owner must occupy the unit and have a down payment that is less than 20%. As such, this does not apply to pure investment purchases. Furthermore, applicants must also have a credit score above 680.

It also helps renters. Or, rather, will help future renters by making the purchase of secondary rental units more affordable, thus encouraging their investment. Secondary suites have accounted for a large proportion of recent growth in Greater Vancouver's rental stock. These suites are typically less expensive than condominium apartments (which have accounted for the vast majority of new rental stock recently) and encouraging their purchase helps to improve affordability

Growth in Vancouver's Rental Stock by Unit Type, 2007-2014

It is admittedly a small measure in the grand scheme of the rental market, but everyone little bit counts. This is especially important in a market where the vacancy rate for purpose-built rental apartments in just 1.3%.

The Details

  • Under the newly announced rules, CMHC will apply 100% of gross rental income from qualifying properties to calculate debt-service ratios
  • Previously, homeowners could only count half of their rental income towards the qualification
  • The income must be sustained for two years

Closing Thoughts

All-in-all this is a welcome change. This encourages development of secondary suites, which are a key component for a region to provide a full range of affordable housing options. As we have argued before, we should be more concerned with providing suitable housing, not necessarily ownership housing.

Image Description