Are you planning to invest in an income property in Quebec but don’t know the financing options for this type of property?
Here is a brief overview of mortgage financing for multi-unit buildings for your reference.
A “multiplex” or “multi-unit” is a property with at least 1 residential unit. In the mortgage financing rules, we distinguish, on the one hand:
These distinctions are made when applying for mortgage financing because the rules surrounding the purchase of a multi-family dwelling with five or more units differ from those surrounding the purchase of a building with four or fewer units.
It should also be noted that if the owner is using the property as his own residence, the maximum loan-to-value ratio changes.
Despite the risks associated with this type of investment, the sales of multi-unit properties have increased by 19% in 2021. This is no accident. Indeed, real estate – especially rentals – can be an excellent investment!
Here are just some of the key benefits of this type of investment:
For a duplex, the minimum down payment is 5% (plus 10% for the portion exceeding $500,000). This rate is only available if the buyer has loan insurance.
If the owner does not live in the house, the required down payment is 20%.
If the borrower has a down payment of 20%, CHMC mortgage insurance is not required.
For a triplex or a quadruplex, the minimum down payment is 10%. This rate is only granted if the buyer has loan insurance.
If the owner does not intend to use one of the units for his residence, the required down payment is 20%.
Below is a summary to guide you in planning your purchase:
Income properties with 1 to 4 residential units
Minimum down payment with owner occupancy, with loan insurance
Minimum down payment with owner occupant, no loan insurance
Minimum down payment with non-resident owner
* 5% if your mortgage is under $500,000. You will have to pay 10% of the amount exceeding $500,000.
When you wish to acquire an income property with 5 units or more, the rules regarding the down payment are somewhat different from those in effect for multi-unit buildings with 4 units or less.
Whether you are an owner-occupant or not, the minimum down payment will be 15% of the total market value of the building and not the selling price.
Another difference is that a building with more than 5 units will be considered a commercial asset and not a residential one. In this case, you will need to obtain a commercial mortgage.
Conversely, a building with 4 units or less will be considered a residential asset. The buyer will then be eligible for a residential mortgage – with significantly lower rates.
Examples of banks that would be able to grant you a home loan:
Residential financing is possible for a 5 to 8-unit property
RBC Royal Bank
Residential financing is possible for 5 to 6-unit property
Apart from the difference in mortgage rates between commercial and residential financing, there is another distinction between the two types of loans. This is in the qualification criteria.
The qualification for this type of loan depends essentially on:
Only three companies are qualified to provide mortgage default insurance in Canada.
The premiums for mortgage default insurance is based on a percentage of the loan amount and your down payment.
The greater the ratio of the total price of the property to the amount of the loan, the higher your insurance premium will be (between 2.8% and 4% of the total mortgage amount).
If you make a down payment of at least 20% of the value of the property, you are not required to pay mortgage default insurance.
In January 2023, the median price for plexes in Quebec CMA was $330,000, a slight decline of about 5% compared to January 2022.
Over in Metro Montreal, the median price for a plex-townhouse as of February 2023 was $545,300. While the real estate market experienced a cooling off during the pandemic, Canada’s housing market seems to be recovering, according to the Canadian Real Estate Association (CREA).
If you are looking to build wealth or secure your future with passive income, consider investing in an income property such as a townhouse, condo, or commercial building.
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