Rental Income Qualification explained
When you buy or own an income property, lenders include rental income in your application, but they discount it to account for vacancy, expenses, and risk. Two common approaches exist. Under the inclusion or add-back method, a percentage of the rent, commonly around 50%, is added to your income. Under the offset method, a percentage of the rent is subtracted from the property's mortgage and operating costs, and only any shortfall counts against you.
In Canada, the exact percentage and method vary by lender and by whether the property is owner-occupied with a suite or a standalone investment property. Lenders also expect documentation, such as a lease, an appraisal with a market-rent estimate, or tax records. Because investment properties are non-owner-occupied, they generally require 20% or more down, and the rental income treatment directly shapes your GDS and TDS ratios.