Top Reasons Your Rental Income Might Not Count for Mortgage Qualification

Many Canadian homeowners plan to use rental income to boost their mortgage eligibility. But lenders don’t always accept that income, and when they don’t, it can derail your entire approval.

The truth is, not all rental income is treated equally. From documentation gaps to property types, lenders apply strict rules to determine how much, if any, of your rental earnings actually count.

Why Lenders Disregard Rental Income

Mortgage lenders don’t automatically accept rental income because they want to assess the reliability, consistency, and legality of those funds. If the income seems unstable, undocumented, or outside their risk threshold, they’ll reduce or exclude it from your qualifying income.

This can drastically lower the mortgage amount you’re approved for — even if your cash flow looks fine on paper.

1. The Income Isn’t Declared on Your Taxes

This is the most common reason rental income is rejected. If you haven’t declared your rental income on your last two years of tax returns, lenders will assume it’s informal or inconsistent. Verbal claims or bank transfers aren’t enough.

How to fix it: Always report rental income on your T776 (Statement of Real Estate Rentals) when filing your taxes. This legitimizes your income and provides proof of history.

2. The Property Is Not Legal or Zoned for Rentals

If your rental unit is part of an unzoned or illegal suite — for example, a basement apartment without permits — lenders may not recognize income from it. Some may consider a portion of it with restrictions, but many will exclude it entirely.

How to fix it: Ensure secondary suites meet local bylaws and zoning rules. Legal conversions and municipal approvals go a long way in making rental income count.

3. You Don’t Have a Signed Lease or Rental Agreement

Without a lease in place, lenders have no way to verify your rental terms or duration. Month-to-month or cash arrangements can seem risky and unverified, even if consistent.

How to fix it: Always use a formal, signed lease agreement. Include start date, rent amount, and tenant name. If you have multiple units, provide separate leases for each.

4. The Lender Uses a Conservative Calculation Method

Even when rental income is accepted, lenders apply different formulas. Some only use 50% of your rental income to account for vacancies and expenses. Others apply a “rental offset” or “add-back” method that affects how much shows up in your total qualifying income.

How to fix it: Work with a broker who understands which lenders offer the best treatment for rental income. Some lenders will use 80% to 100% of your gross rent if you have strong documentation.

5. You’re a First-Time Landlord Without History

If you’re buying a property and plan to rent out a unit for the first time, some lenders may not accept projected rental income unless you have a signed lease and a market rent letter from an appraiser. Even then, approval isn’t guaranteed without prior rental experience.

How to fix it: Get a detailed rental market appraisal with projected income. Secure a lease before closing if possible. Some lenders specialize in investor-friendly underwriting.

What to Do If Your Rental Income Is Being Ignored

If your lender isn’t counting your rental income, you still have options:

  • Gather Stronger Documentation: Tax returns, leases, and market rent appraisals all help strengthen your case.
  • Explore Alternative Lenders: Some B-lenders or credit unions are more rental-income friendly, especially for new investors.
  • Adjust Your Strategy: Consider a lower loan amount, a larger down payment, or a co-signer to bridge the gap.

Conclusion

Not all rental income will help you qualify for a mortgage, especially if it’s undocumented, irregular, or tied to an unapproved unit. But with the right preparation and lender strategy, you can often get partial or full credit where it counts.

If you’re trying to qualify using rental income, Pradip Maheshvari can help structure your mortgage with lenders who understand investment properties and rental-based income.

Can Your Co-Signer Put You at Risk as a First-Time Buyer?

Getting a co-signer can make homeownership possible when you don’t qualify for a mortgage on your own, but it’s not a risk-free move. While a co-signer can boost your approval chances and loan amount, their involvement also creates shared liabilities that could put you or them at financial risk if things go wrong.

The key is understanding exactly how co-signing works, what it means for both parties, and how to protect yourself legally and financially before you sign anything.

What Happens When Someone Co-Signs Your Mortgage

A co-signer agrees to take full legal responsibility for your mortgage if you fail to make payments. In Canada, this typically means they’re part of the mortgage contract, either as a co-signer (on the loan but not the property title) or a co-borrower (on both the loan and title). This distinction matters.

Lenders use the co-signer’s income and credit profile to strengthen your application. But that comes with shared consequences. If you default or miss payments, it hits both of your credit scores. If the co-signer ever needs a loan for themselves, your mortgage could reduce their borrowing power.

Financial Risks a Co-Signer Can Create

Even if your co-signer has good intentions, things can go sideways quickly if expectations aren’t clear. Here’s how they could unintentionally put you at risk:

  • Unwanted Control or Pressure: Some co-signers may try to exert control over your financial decisions since their credit is on the line.
  • Conflict During Sale or Refinance: If the co-signer is on the title and you want to sell, they’ll need to agree. This can get messy if your relationship sours.
  • Difficulty Removing Them Later: Removing a co-signer often requires refinancing the mortgage, and you’ll need to qualify on your own.

When a Co-Signer Helps — and When They Hurt

Having a co-signer can help you:

  • Qualify for a mortgage you couldn’t get alone
  • Access better interest rates with lower income or credit
  • Meet lender requirements if you’re self-employed or new to Canada

But it could hurt if:

  • You aren’t financially ready for homeownership
  • You and the co-signer don’t have a clear agreement
  • The co-signer’s finances change, and they want out

The biggest mistake first-time buyers make is treating co-signing as a shortcut, rather than a serious joint responsibility.

How to Protect Yourself as a First-Time Buyer with a Co-Signer

Before involving anyone in your mortgage, take these steps to reduce risk on both sides:

  • Use a Legal Co-Signer Agreement: Document expectations around payments, communication, and exit plans. This keeps everyone protected if disputes arise.
  • Keep the Co-Signer Off the Property Title: This gives you more control and protects the home from being claimed during a co-signer’s divorce or legal issue.
  • Have a Backup Plan for Payments: Whether it’s a savings cushion or insurance coverage, make sure you can cover the mortgage alone if needed.
  • Plan an Exit Strategy: Aim to remove the co-signer within a few years, through refinancing or increased income, to regain full ownership and responsibility.

These steps show the lender and your co-signer that you’re serious, responsible, and planning ahead.

Signs That Your Co-Signer Might Be a Liability

While many co-signers are supportive family members, some situations can turn into long-term headaches. Watch for:

  • Frequent Financial Instability: If they often ask for financial help, it may be a red flag.
  • Disagreements Over Ownership or Use of Property: Misaligned expectations can lead to legal issues.
  • Legal or Credit Problems: Their own debts or legal troubles could jeopardize the home.
  • Refusal to Sign a Co-Signer Agreement: This often means they haven’t fully thought through the commitment.

If you see any of these signs, take a step back before signing the mortgage.

Conclusion

A co-signer can help you become a homeowner sooner, but the decision must be made with caution, not desperation. Co-signed mortgages create shared obligations, and without clear agreements, you risk damaging relationships — or worse, your credit and ownership.

If you’re unsure how to structure a safe mortgage as a first-time buyer, Pradip Maheshvari can guide you through the co-signer process with smart, risk-aware strategies.