The client
A couple buying an acreage property outside the High River market planned to live in the main house and keep the existing outbuilding — a separately metered shop — leased to a small-engine repair business already operating on-site under a signed 12-month commercial-style lease. This is an insured mortgage purchase at 10% down, so CMHC's published ratio maximums are the numbers that decide the file, not a lender preference.
Borrowers
Two-income household, salaried
$11,000/month combined gross income
Purchase price
$580,000 acreage, High River
Main house plus a leased shop/outbuilding
Down payment
$58,000 — 10%
Under 20%, so the file must be default-insured
Existing debt
$650/mo vehicle loan + $280/mo equipment loan
$930/month combined
Shop lease
$650/month
Signed 12-month lease, separately metered
Closing costs
Alberta land-titles registration fees
Charged on a sliding scale; kept qualitative in this file, not itemized as a dollar figure
The insured loan itself, before either debt-service ratio is tested:
| Insured loan structuring | Amount |
|---|---|
| Purchase price | $580,000 |
| Down payment (10%) | −$58,000 |
| Base mortgage (90% LTV) | $522,000 |
| CMHC premium — 3.10% in the 85.01–90% LTV band, capitalized | +$16,182 |
| Total insured mortgage | $538,182 |
The problem
GDS on the acreage itself was never the issue — it came in comfortably under CMHC's 39% maximum. TDS was the problem, and the sticking point was not a rental-offset dispute like the other files in this batch: it was whether the shop lease counted for anything at all.
The TDS arithmetic without the shop lease
- ▸Housing costs (GDS numerator): $4,190/mo — 38.1% of income, under the 39% GDS cap
- ▸Vehicle loan $650 + equipment loan $280 = $930/mo in other debt
- ▸TDS: ($4,190 + $930) ÷ $11,000 = 46.5% — over CMHC's 44% maximum. Declined.
Two lenders would not count the shop lease at all, treating a non-residential accessory structure as outside the scope of a standard residential rental-income policy. The vehicle and equipment loans — ordinary for a working acreage — were enough on their own to push TDS over the ceiling.
The numbers
The qualifying rate and the insured premium are fixed by CMHC; what varies here is whether a third income stream from the property itself gets counted.
| Rate and payment | Amount |
|---|---|
| Contract rate — 5-year fixed insured (illustrative, not a quote) | 4.79% |
| Minimum qualifying rate — greater of contract + 2% and 5.25% | 6.79% |
| Monthly P&I at the qualifying rate — the ratios run on this | $3,700 |
| Monthly P&I at the contract rate — what is actually paid | $3,066 |
GDS — the acreage on its own
| GDS | Monthly |
|---|---|
| P&I at the qualifying rate | $3,700 |
| Property tax | $340 |
| Heat (lender-standard estimate) | $150 |
| Housing costs $4,190 ÷ income $11,000 → GDS 38.1% — under the 39% cap | ✓ |
TDS — where the shop lease decides the file
The 100% recognition applied here is not the usual 50%/80% split seen elsewhere in this batch — the third lender's policy was a binary one, since the outbuilding is a separately metered structure with its own lease, not a suite inside the home.
| TDS line | Shop lease not counted | Shop lease fully counted |
|---|---|---|
| Income used | $11,000 | $11,650 (incl. full $650 shop rent) |
| Housing costs + other debt | $5,120 | $5,120 |
| TDS | 46.5% ✗ | 43.9% ✓ |
Adding the full $650 shop lease to income — not a discounted share of it — is what moved TDS from over CMHC's 44% ceiling to comfortably inside it, and the numbers in the worked GDS/TDS examples show the same mechanic on ordinary files: a small, fully-recognized income stream moves the ratio further than a large, heavily discounted one.
The solution
A RECA-licensed Alberta mortgage associate diagnosed the decline correctly: the borrowers' own income and debt load were not the problem, and a rental-offset renegotiation would not have helped, since neither of the first two lenders was discounting the shop income — they simply would not credit it. The fix was finding a lender whose policy explicitly covers separately metered accessory-structure income on an owner-occupied acreage file.
The submission was built to remove any doubt that the lease was real, current, and separate from the applicants' own use of the property:
Once the lender's policy on outbuilding income was confirmed in writing before submission, there was no ambiguity left for underwriting to resolve — the file either qualified on the strength of a documented, separately metered lease, or it did not, and it did.
The outcome
Approved and funded: insured at 90% LTV, 25-year amortization, 5-year fixed term, with the shop lease carried forward as income on future renewals subject to the tenant re-signing.
Alberta has no land transfer tax; Land Titles Office registration fees apply on a sliding scale to both the transfer and the mortgage registration, and were quoted by the lawyer as part of closing rather than itemized as a fixed dollar figure here.
What to take from this file
- 01Not every rental-income dispute is an add-back-vs-offset question. Sometimes the fight is simpler and harsher: will this lender count the income at all.
- 02Secondary income streams from accessory structures need their own documentation trail. A separate utility meter and 12 months of deposited lease payments did the real work here.
- 03Confirm a lender's policy on non-standard income before submitting, not after. Two declines could have been avoided by asking the outbuilding-income question up front.
- 04GDS passing easily does not mean TDS will. Ordinary vehicle and equipment debt, common on a working acreage, is exactly what pushes TDS over the ceiling on an otherwise clean file.
Sources
Every regulatory figure in this file traces to one of these primary sources. Client details and anything that varies by lender are illustrative, as flagged below.
- ▸CMHC — Purchase (Mortgage Loan Insurance) — default-insurance premium schedule by LTV band (25-year amortization).
- ▸CMHC — CMHC Home Start — minimum down payment tiers (5%/10%) and the $1.5M insured price cap.
- ▸OSFI — Minimum qualifying rate for uninsured mortgages — the minimum qualifying rate — greater of contract rate + 2% or 5.25%.
- ▸CMHC — CMHC Reviews Underwriting Criteria — GDS 39% / TDS 44% maximums and the 600 credit-score floor for insured files.
- ▸Provincial/territorial mortgage-broker legislation fetched directly (bclaws.gov.bc.ca, legisquebec.gouv.qc.ca, fcaa.gov.sk.ca, web2.gov.mb.ca, nslegislature.ca, assembly.nl.ca) plus FCNB's own site for NB and CanLII's index for PE — see notes for per-province method — provincial mortgage regulators and licence titles.
Illustrative in this file — lender-specific, not rules:
- ▸4.79% contract rate — rates move daily; not a quote.
- ▸100% recognition of the shop lease — each lender sets its own policy on secondary-structure income; a discount or refusal is equally common.
- ▸$340/mo tax and $150/mo heat estimates — lender-standard estimates, not rules.
Authority & provenance
How this case file was built
We publish the origin, the verification method and the reviewer for every case file, so you can judge how far to trust it before you rely on it with a client.
Where it comes from
Derived from files handled by Treadstone’s fulfillment desk and from scenarios contributed by partner brokerages. Names, employers, exact amounts and dates are changed so no client or file is identifiable.
Provenance: Composite — a pattern seen repeatedly on fulfilled files, not a single transaction.
What is verified
Every regulatory figure traces to a primary source listed above and was checked against it on the date shown. The arithmetic is recomputed by machine on every rebuild.
Anything that varies by lender is labelled illustrative rather than stated as a rule.
Who reviewed it
Reviewed for Canadian regulatory accuracy before publication, and re-checked whenever a cited rule changes.
Reviewed by: Nicholas Parson, Treadstone Associates — reviews every case file before publication.
This case file is professional reference material for licensed mortgage professionals. It is not advice to a borrower, and it is not a lender commitment. Insurer rules, qualifying rates and provincial taxes change — confirm the current position with the insurer, regulator or lender before you rely on any figure here in a live file.