CMHC allows 100% of legal basement suite rent toward mortgage application - key word: LEGAL - by: Andy M Tran

A few days ago, the CMHC (Canada Mortgage & Housing Corporation) announced it is now allowing buyers with less than 20% down payment, who are buying homes with secondary suites to include 100% of the potential rental income when applying for a mortgage. In an average single family home in a market like Toronto or Vancouver, this can mean up to an additional $24,000 per year, which is huge when it comes to improving your GDS (gross service debt) ratio, a big factor in determining what you can afford. This becomes effective in the fall.

This is great news for many home buyers, although the big elephant in the room is that most existing second suites are illegal. In my time as a home inspector and energy advisor, I would likely find more than several items in a basement suite that would indicate it was illegal. Low ceiling heights, improper egress windows, inadequate floor space and lack of required ventilation, just to name a few.

Hundreds of Code Items

While it may be easy to identify illegal suites, it's nearly impossible to identify a legal one. That's because there are hundreds of items in the building code pertaining to basement suites, zoning requirements and possibly very specific by-law issues in a particular community. 

The only sure way to confirm legality is documentation. If the suite was put in legally, permits would have been taken out and the construction would have been inspected by a building official. The local municipal building department should have a record of its legality. CMHC has placed the burden on the lender to confirm legality. I certainly hope they call the city building department to find out instead of sending one of their appraisers to the house to determine if it's legal.

Here's a particular type of casement window in a basement apartment that meets the requirements as an egress window

Here's a particular type of casement window in a basement apartment that meets the requirements as an egress window

Bill 140

The government of Ontario have set policies that have made it easy for those who wish to do it properly. Passing Bill 140: Strong Communities through Affordable Housing Act mandates now that all municipalities have policies set in place for allowing legal secondary suites, most of which are basements. In Toronto however, policies have already been in place since 2000. It is now incumbent on the homeowner or home buyer to ensure that their basement suite is legal. 

Various Scenarios

So let's go down the list of best case scenario to worse if you're thinking about buying a home with a legal suite, assuming the property is in an area where second suites are allowed.

  1. The suite is legal and seller has documentation to prove it.
  2. The basement is unfinished and construction is easily able to meet building code requirements.
  3. The basement suite is finished and meets the code requirements, but needs to be approved by fire services and the building department for legality.
  4. The basement is unfinished and alterations are needed to be made to the base structure to meet code (e.g. ceiling height).
  5. The basement is finished and major alterations are needed, and it also needs to be approved by fire services and the building department.

There are ways to address each of the scenarios above, but there is no guarantees that it will work for sure. If you're buying with a legal suite in mind, make sure to work with a real estate professional that is on the same page.

Why Legal is Important

While a legal suite is important for qualifying for this new CMHC policy, and can help affordability, it's more important for several other factors. Having a legal unit will protect the integrity of the structure, the neighbourhood where it resides, and will likely increase or at least preserve the value of the home. Further, you have the peace of mind that occupants are safe, and not worry that your insurance company may deny you coverage in a claim situation because your unit was illegal.

Online Resource

I have put together this site (www.suiteadditions.com) as an online resource for homeowners and others with a vested interest in doing things correctly. Check back often as I will be updating info on this site and keep you abreast of changes.

Thanks for reading! Please share your thoughts in the comments section below!