Two types of borrowers usually apply for rental property mortgages – speculative buyers and buy-and-hold type of investors. The requirements for institutional rental property mortgages differ from those for standard mortgages. This mortgage focuses more on the borrower’s net worth and credit rating, down payment, property appraisal, and the presence of renters. If you have more than one rental unit, lenders will ask whether and how many are presently occupied.

Private lenders focus mostly on the property’s valuation. If the property you want to buy has an attractive location and excellent rent rolls, then you can secure a high loan-to-value. If you want to make improvements, a second mortgage is the solution if there is enough equity in your home.

Where to apply for a rental property mortgage? There are many mortgage lenders out there, but you may check with a traditional lender first. A bank mortgage is a good choice if you are looking into long-term investment because they come with low interest rates and the longest terms. You can check with hard money lenders as well, but you may be offered a loan with a term of one year or so. On the other hand, while banks offer favorable terms and rates, it is more difficult to obtain a mortgage with them.

Regarding rentals, financial establishments will normally lend up to 65 percent of the appraised value or purchase price, whichever of them is lower . In some cases, lenders may agree to give you up to 75 percent, depending on your financial strength and the location of the chosen property. If the amount you require is higher, you may have to insure the mortgage through the CMHC. You may be offered funds up to 85 percent if you have insurance with them. It should be noted that insurance premiums do not come cheap and may reach up to 4.5 percent of the loan amount. Your lender may also require that the property is to be used for residential purposes only.

Regarding other requirements, the money made from renting the property should cover most of the expenses. Of course, mortgage payments are included here. If renting cannot generate enough to pay the expenses, you should have other sources of income.

This should go without saying, but the income you get from renting should be from legal and permissible use of the property. For instance, if the house you buy comes with an unauthorized basement suite and you rent it, the money should not be included in the income the property generates. Therefore, it will not contribute to meeting operating expenses.

What should you look for when you want to buy a property to rent? You should ideally look for a nice area with low vacancy rates. In this way, you can charge higher rates, plus attractive locations tend to attract nice tenants.

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