For homeowners adding a rental unit or family suite
A legal secondary suite can add living space or rental income. Here is how to finance it and what to check before you build.
Ontario allows additional residential units in many homes and lots, but the details are set by each municipality and the building and fire codes. Financing follows the same logic: lenders want to see a legal, safe unit, a realistic budget and a plan to repay. Here is how it usually works.
You've started an application.
Saves as you go · No credit check · A licensed mortgage professional follows up
1A secondary suite is a separate self-contained unit within or beside your home, such as a basement apartment, an upper-floor unit, a garden suite or a laneway suite. Local zoning and permits decide what you may build.
2To finance construction, some people use a HELOC, a second mortgage or a refinance. Some lenders may also consider part of the expected rent when you qualify, and some count only legal units with permits.
3Costs include the build itself, permits, inspections, lender and broker fees, legal and appraisal. A budget for delays and extra work is wise, because renovation costs often rise.
4Rental income is not guaranteed and a vacant unit still has a mortgage payment attached. Everything is subject to lender approval and local rules.
Get ready
What lenders will ask you for
Government photo ID for every owner on title
Your property tax bill, proof of home insurance and current mortgage statement
Plans, a contractor quote and the building permit or application for the suite
Income proof: pay stubs, notices of assessment or other records
For an existing unit, the lease, proof of rent received and evidence that the unit is legal and registered where required
Your options
Which kind of lender fits you
Option 1
HELOC
Flexible draws as the work progresses, with interest-only payments. Subject to income and credit approval.
Option 2
Second mortgage
Keeps your first mortgage in place while you borrow against equity. Higher rate, with lender and broker fees.
Option 3
Refinance with rental income considered
Some lenders may count part of the rent from a legal unit when you qualify. Policies differ.
Option 4
Purchase-plus-improvements or renovation mortgage
Some lenders release funds in stages as work is completed. Terms vary, and an inspection is usually required.
Avoid these
Common mistakes
!Building before checking local zoning, permits and fire and building code requirements. An unpermitted unit can be hard to finance, insure or rent.
!Counting on rent to cover the whole payment. Vacancies and repairs happen.
!Underestimating the cost and not leaving a buffer for delays and changes.
!Not telling the insurer. A rental unit often changes the type of home insurance you need.
Take action
Your first steps
1Check with your municipality about zoning, permits and any other requirements for a suite on your property.
2Get at least one detailed contractor quote and include a buffer for extras.
3Gather your mortgage statement, tax bill, ID, income proof and the plans.
4Start the intake so a broker can compare HELOC, second mortgage, refinance and renovation options.
5Review the written costs, plan how the loan will be repaid, and get independent legal advice before you sign.
The intake
What your application will ask
Your online application goes one topic at a time and saves every answer and document as you go, so you can stop and come back. It never runs a credit check, and a licensed mortgage professional reviews it and follows up.
For secondary suites borrowers
What type of unit is it (basement, upper floor, garden suite, laneway suite), and is it new construction or an existing unit?
What is the home worth, where is it, and what is owed on it today?
What is the estimated cost of the project, and what permits are in place or planned?
Do you expect rental income, and how would you manage the payments if the unit is empty for a time?
Plus the basics everyone answers 13
Your full name, email, mobile number and the best time to call.
The city you live in, and whether you are a Canadian citizen, permanent resident, or other status.
Are you applying alone or with someone else? If with someone, their name and how you are related.
Your goal: buy, refinance, renew, take out equity, or consolidate debt?
The property type (house, condo, multi-unit) and the city it is in.
Will you live in it, rent it out, or both?
The purchase price or estimated value, and your target closing or renewal date.
Your down payment or available equity, and where it comes from (savings, RRSP/FHSA, a gift, sale of another property).
Your approximate yearly household income before tax.
Your monthly debt payments: car loans, credit cards, lines of credit, student loans, support payments.
Your own estimate of your credit score: excellent, good, fair, poor, or not sure.
In the last 7 years, any bankruptcy, consumer proposal, collections, or missed mortgage payments?
May the broker contact you? (A credit check is only ever run later, with your separate written consent.)
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Answers
Questions people ask
Can I get financing for a basement apartment in Ontario?
Often there are options, such as a HELOC, a second mortgage or a refinance. Lenders consider your income, credit, equity and whether the unit is legal. Approval is never guaranteed.
Will a lender count the rental income?
Some lenders may count a portion of the expected or actual rent from a legal unit. Rules differ widely, and some do not count it at all.
Does the unit need to be legal?
It should be. Lenders, insurers and tenants all prefer a unit with proper permits and inspections. Check your municipality for local requirements.
What costs should I plan for?
Construction, permits, inspections, lender and broker fees, legal and appraisal costs, and extra insurance. Include a buffer, since renovation budgets often grow.
How would I repay the loan?
Through regular payments, helped by rental income if the unit is rented, or by refinancing or paying down from savings. Decide before you borrow, not after.
Does starting the intake affect my credit?
No. It is only questions. A credit check, if needed, comes later and only with your permission.
General information, not mortgage, legal or tax advice. Lender rules change and every application is reviewed on its own facts. Your application and documents are stored privately and go only to a licensed mortgage professional at Top Mortgages Inc; they are never sold, and no credit check is run without your separate written consent.