Home buyers often question whether it will make a significant difference in their purchasing power if they buy a home with a basement suite. The answer that most mortgage professionals give, is that it generally won’t make as much as an impact on the home you can afford to buy as it used to. That’s because the federal government made a number of changes in how that rental suite income is allowed to be used to qualify you for a mortgage. But thanks to some smaller credit unions, that basement suite can still have a large positive effect. Just keep in mind that you need to have at least a 20% down payment.
That mortgage helping basement suite can increase the average buyers mortgage size by around 45%. That is still a massive difference. It can also greatly affect the quality of home you want to buy, as well as the neighbourhood in which you want to buy. In some cases, it might also make the difference between buying a townhome, or a detached home for your family.
Here’s a typical average buyer’s scenario and how it might affect them.
Annual Income: $100,000
Down payment: $225,000
Buying a House without a suite: They’d qualify for a mortgage of about $615,000, so with their down payment they could buy a home priced around $840,000.
Buying a House with a suite: They’d qualify for a mortgage of about $890,000, so with their down payment they could buy a home priced around $1,115,000.
While they would have a significantly larger monthly mortgage payment on the house with a basement suite, the increase in mortgage payment and property taxes due to the more expensive home is almost completely offset by the suite income on a 1:1 ratio. Meaning your “net” mortgage payment after the suite income will be the same (or even less) than the house without a suite.
A basement suite is definitely something to consider when buying your dream home. While having tenants share your home might not be part of your dream, it can definitely help when finding a house for your family, in an area you want to live.
Doug Neufeld, BBA, AMP
Senior Mortgage Planner
Dominion Lending Centres – Mortgage Negotiators