Laneway housing is something fairly new to the City of Toronto. Therefore, lenders typically take a little longer to adapt and become aggressive on their programs for it. Currently, lenders can refinance homes up to 80% loan to value at best pricing. However, this changes when looking at laneway housing.
For both primary and second home residences, a lending partner will not allow “out buildings” into their appraisal valuation. Let’s say a rural home on acreage has a barn, or a luxury cottage has a cabin, or a city home has a laneway house. All of these are perfectly fine but the lender will not allow maximum leverage. This means they will not include those buildings into the total valuation given by the appraiser.
For example: If a house was purchased for $2M, the lender would finance 80%, or $1.6M. If the applicant decided to spend $400,000 on a laneway house, they would need to either pay cash or obtain a 2nd mortgage at higher interest rates to access the capital. After completion, lenders will use the rental income from the laneway house to help the homeowner qualify for a mortgage. This is especially helpful to those who are self-employed or business owners who show less on their personal income. Additional rental income of a laneway house offsets both the monthly cost of the home but also helps owners qualify for a mortgage.
With the recent favourable zoning changes by the city of Toronto, we hope to see lenders opening up more programs for laneway housing. Remember, for residential mortgages it is meant to finance a residential home and maybe two to three rentals whereas on the commercial financing side it is meant for more business savvy operations. The good news is that if the Borrower lives in the property (or the laneway suite) it will be considered an “owner occupied home” for borrowing purposes. This means they would obtain absolute best pricing opposed to being considered a rental investment property, which typically has a higher rate.
There are many factors to consider when purchasing a new home or investment property. Evaluating the project and finding the financing necessary to complete it can often prove to be stressful. However, working with a broker to bring in-depth knowledge and experience at finding mortgage solutions, can put you at ease.
Drew Donaldson, founder of Donaldson Capital, has over 17 years of lending and financing experience; both within the residential and construction sectors. Having been named a ‘Top 75’ Mortgage Broker in Canada since 2019, he continues to serve his clients through a customized approach to each situation. Having helped finance over $6 Billion dollars thus far, he is an expert in securing the best rate and total package for his clients. Donaldson Capital provides customized mortgage solutions to high net worth individuals and families committed to growing their wealth. They pride themselves in simplifying the most complex scenarios so that our clients can feel confident about their financing endeavours.
Mortgage Broker and Founder of Donaldson Capital
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