Are you looking at getting a mortgage for a rental property? You might have considered increasing your passive income by purchasing a rental property. This really can be an excellent “side hustle” and provide significant income to your bottom line, over time.
When buying a rental property, getting a mortgage is very similar to getting your first mortgage, with one extra step.
To recap, you’ll need to be organized. You will need some/all of the above:
- 2 Years of Tax Returns
- 3 months of recent pay stubs
- A copy of your latest 3 bank statements (confirming payroll deposits)
- A copy of any assets in a brokerage account / ie 401k / ira etc
- Proof of funds for a down payment
- Know what’s on your credit report
One thing to consider, if you’re getting a mortgage on a rental property, not all lenders will require all the above documentation. So while it’s excellent to have it ready, only provide it if asked!
The lender will likely try to approve your rental property mortgage based on this alone. In case they need a little extra help on the income side, the lender might offer a little discretion as to how much rental income they would allow. This will be dependent on factors such as your banking relationship, and overall application strength.
Conservative lenders may allow 75% of the potential rental income to your existing employment income.
Another thing to consider is that you might not get the absolute best rate available – not necessarily a bad thing.
Tip: When obtaining mortgage financing, my recommendation is to always get as much as you can, for as long as you can, at the lowest interest rate – and no PMI/CMHC insurance. This will give you optimal cash flow flexibility.
-Rick
Great post. Thanks a lot.