Key takeaways
- Rental properties generally need a larger down payment, commonly at least 20%.
- Lenders may count only part of your expected rental income, and policies vary and change.
- Carrying costs, vacancies and reserves matter as much as the mortgage.
- Speak with an accountant and lawyer about tax and legal matters.
A rental property can be a way to build wealth, but it comes with different financing rules and more risk than buying a home to live in.
Down payment
For a property you don't plan to live in, lenders generally require a larger down payment than the owner-occupied minimums, commonly at least 20%. Owner-occupied properties with a rental unit (for example, a duplex where you live in one unit) may be treated differently. Ask about your specific plan.
How lenders count rental income
Lenders usually don't count all of the rent when assessing whether you qualify. Some count a portion (for example, a percentage of the rent), and some add rent to your income while others subtract expenses. Policies vary by lender and have been changing, so ask how your lender would treat your numbers before you make an offer.
Costs to plan for
- Mortgage payments (rates for rentals are sometimes higher than for owner-occupied homes)
- Property taxes, insurance and maintenance
- Vacancy: months without a tenant
- Condo fees, if applicable
- Closing costs, including land transfer tax (first-time buyer refunds apply only to a home you'll occupy)
- An emergency reserve
Questions to ask before you buy
- Can I carry this property if it sits vacant for a few months?
- What happens to my payment if rates rise at renewal?
- Do local rules (such as rent control or licensing) apply to this property?
- How will rental income be taxed? (Speak to an accountant.)
Using equity in your current home
Some investors use equity from a home they own to fund a down payment. See refinancing for how that works and what to weigh.
This article is general information, not tax, legal or investment advice.
To explore financing for your own plan, see investment property financing or book a call.
This article is general information, not personalized mortgage, legal, tax or financial advice. Rules, rates and eligibility change and depend on your circumstances and lender criteria. Confirm details before you make decisions.
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