Down payment for a rental property
1-4 unit rentals require 20% down minimum (no CMHC available). 5+ units are commercial and need 25-35% depending on lender policy.
Your scenario
Result
Lenders typically only count 50-80% of rental income when qualifying. Plan for higher down payment if other debt is meaningful.
Why rental property down payments are bigger
Federal regulations require at least 20% down on non-owner-occupied properties. CMHC and the private insurers (Sagen, Canada Guaranty) generally don't insure investment property mortgages, so the conventional 5% / 10% rules don't apply. The down payment is the largest single barrier to building a rental portfolio in Canada.
1-4 unit residential rental — 20% minimum
- 1-2 unit non-owner-occupied: 20% down minimum. A-tier lenders standard.
- 3-4 unit non-owner-occupied: 20% down standard, some lenders require 25% based on market or property condition
- Owner-occupied 2-4 plex: can qualify for the standard high-ratio CMHC insurance with 5-10% down — a useful loophole for first-time investors who'll live in one unit
5+ units — commercial mortgage territory
- 5-6 units: technically commercial; 25-30% down standard, some lenders treat them more like residential
- 7+ units: full commercial underwriting; 25-35% down depending on DSCR (debt service coverage ratio), property condition, market
- CMHC MLI Select: a federally-backed program for purpose-built rental can dramatically reduce down payment requirements (5-10% in some cases) IF you meet affordability + energy efficiency + accessibility criteria
Down payment sources lenders accept
- Personal savings with 90-day history
- Equity from another property via HELOC or refinance
- Sale proceeds from another property
- Gift from immediate family — gift letter required
- Borrowed down payment (private LOC, second mortgage) — possible but the loan payment goes into your TDS calculation
Rental income offset in qualifying
Lenders typically use 50-80% of gross rents to offset the mortgage for qualifying purposes. The exact percentage varies:
- 50%: most conservative lenders, owner-occupied 2-plex
- 70-80%: most A-tier banks for established rentals with lease history
- 100%: some B-lenders + commercial deals (with stricter DSCR overlays elsewhere)
This means even if a rental fully cashflows on paper, lenders may treat it as a partial drain on your other debt servicing — limiting how many properties you can accumulate without exceptional income.
The DSCR ratio — commercial deals
For 5+ unit commercial mortgages, lenders qualify the property itself on Debt Service Coverage Ratio: net operating income ÷ annual debt service. Common minimums:
- DSCR 1.20: standard A-tier commercial
- DSCR 1.10: aggressive A-tier or smaller properties
- DSCR 1.30+: conservative or higher-LTV scenarios
If the property's NOI doesn't cover the proposed mortgage payment at the required DSCR, the deal doesn't fund regardless of your personal income.
The 4-rental-property ceiling
Most A-tier Canadian banks cap individual borrowers at 4 financed rental properties. Beyond that, you typically move to:
- Smaller A-tier lenders without the cap
- B-lenders with looser exposure rules
- Commercial portfolio lending
- Holding properties in a corporation (with corporate financing)
How to scale a rental portfolio with limited capital
- Owner-occupy first 2-4 plex — use CMHC insurance, 5-10% down
- Refinance once you have 12 months of stable income from the rental units — pull out equity for the next deal
- Repeat until you hit the lender's rental property cap
- Partner with another investor to combine capital + qualifying income
- BRRRR strategy — Buy, Renovate, Rent, Refinance, Repeat (see BRRRR calc)
Related
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