Buying a house with an income suite can significantly enhance your purchasing power. An income suite is a separate living space within a home that can be rented out, generating additional income that lenders can consider when determining your mortgage eligibility. Here’s how it generally works:
Increased Purchasing Power
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Rental Income Consideration: Lenders often consider a portion of the rental income from an income suite when calculating your mortgage approval amount. Typically, they might include 50-80% of the expected rental income.
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Debt-to-Income Ratio Improvement: The additional rental income can improve your debt-to-income ratio, making it easier to qualify for a larger loan. This ratio is a key factor lenders assess when determining how much mortgage you can afford.
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Higher Loan Amounts: With the added rental income, you may qualify for a higher loan amount, allowing you to purchase a more expensive home than you could without the suite. For instance, if an income suite generates $1,000 per month, and a lender considers 75% of that amount, it adds $750 per month to your income calculation. This could potentially increase your mortgage approval by a significant amount.
Example Calculation
Suppose a lender uses 75% of the rental income from an income suite. If the suite can be rented for $1,000 per month:
- $1,000 x 75% = $750 additional income considered by the lender.
- If the lender uses an income multiplier (often around 4-5 times your annual income to determine loan amounts), this could mean an additional $36,000 to $45,000 in borrowing power.
Additional Considerations
- Property Value and Market Demand: Homes with income suites may have higher property values due to the added potential income, making them more attractive to buyers and investors.
- Local Regulations: It's important to check local zoning laws and regulations to ensure that renting out an income suite is allowed.
- Tax Implications: Rental income is taxable, so it's important to account for this in your financial planning.
