The client
A buyer took assignment of a pre-construction contract in Metro Vancouver, stepping into the original purchaser’s position ahead of final completion and intending to hold the unit purely as a rental. The Metro Vancouver market had room to run during the build: the developer’s original contract priced the unit well under where completion-day appraisals were landing two years later.
Structure
Assignee, pre-construction condo
Closing at final completion, held as a rental
Original contract price
$560,000
Set when the original purchaser signed
Deposits already paid
$112,000
20% of the contract price, credited at completion
Assignment fee to the assignor
$145,000
Deposit reimbursement plus profit — paid outside the mortgage
Employment income
8,000/mo
T4, unrelated to the rental
Completion-day appraisal
$600,000
Higher than the original contract price
The problem
Two separate issues met at closing. First, with no tenant in place yet — the unit was still under construction when the file was submitted — the lender would not count any rental income at all without a signed lease, which does not exist on a pre-construction assignment closing. Second, the completion-day appraisal came in well above the original contract price, and the client’s first assumption was that the higher value meant more borrowing room.
The no-rent arithmetic
- ▸Mortgage: $560,000 contract price less $112,000 in deposits already paid = $448,000
- ▸Housing costs at MQR 7.09%: 3,548/mo
- ▸GDS on employment income alone: 44.4% — against the 39% benchmark. TDS runs 47.0%, against 44%.
Neither problem was really about the borrower’s qualification — the file needed documentation that a purchase-only, pre-completion transaction structurally cannot produce yet, and a lending rule the client hadn’t encountered before: the mortgage is sized to the lesser of the contract price and the appraised value, never the higher figure, even when the appraisal genuinely supports more. The full mechanics of how assignment sales are underwritten are covered in how lenders treat assignment sales.
The numbers
With 20% of the contract price already credited as deposits, this is a conventional, uninsured file — no CMHC premium applies, and the borrower still must qualify at the minimum qualifying rate.
| Sizing the mortgage at completion | Amount |
|---|---|
| Original developer contract price | $560,000 |
| Deposits already paid (20%, credited) | −$112,000 |
| Mortgage due to the developer at completion | $448,000 |
| Completion-day appraised value (not used for sizing) | $600,000 |
The appraisal came in $40,000 above the contract price, but the lender sizes the mortgage on the lower of the two figures — the paper gain during construction does not translate into extra borrowing room.
| Rate & payments | Figure |
|---|---|
| Contract rate (illustrative, not a quote) | 5.09% |
| Minimum qualifying rate | 7.09% |
| Monthly P&I at the qualifying rate | 3,163 |
| Monthly P&I at the contract rate | 2,629 |
Without the rent, with the rent
| GDS / TDS | No rent counted | 50% rent add-back |
|---|---|---|
| Housing costs | $3,548 | $3,548 |
| Income used | 8,000/mo | 9,100/mo |
| GDS | 44.4% ✗ | 39.0% ✓ |
| TDS | 47.0% | 41.4% |
The solution
The submortgage broker on the file addressed the missing lease directly rather than waiting for a tenant who could not exist yet.
Ordered an appraiser’s market-rent letter alongside the completion appraisal, documenting the unit’s expected rent of $2,200/mo based on comparable rented units in the same building and neighbourhood — the standard substitute for a lease that has no reason to exist before the building is registered.
Placed the file with a lender whose policy accepts a market-rent letter for a 50% rental offset, the same add-back mechanism covered for tenanted properties in our comparison of rental income offset methods, applied here to a property that has no tenant yet.
The outcome & the closing math
Funded conventionally on the developer’s contract price, with the rent survey clearing both ratios comfortably.
| Cash due at closing (beyond the deposits already paid) | Amount |
|---|---|
| BC Property Transfer Tax on the $600,000 fair market value at registration | $10,000 |
| Assignment fee to the assignor, paid separately from the mortgage | $145,000 |
| Legal fees, title insurance & adjustments | varies |
Had PTT been assessed on the lower $560,000 contract price instead of the completion-day fair market value, it would have run $9,200 — $800 less. The two rules cut in opposite directions: the mortgage uses the lower figure, PTT uses fair market value at registration.
What to take from this file
- 01A pre-construction assignment has no lease to submit, by definition. An appraiser’s market-rent letter is the standard substitute wherever a lender’s policy accepts one.
- 02The mortgage sizes to the lower of contract price and appraised value, never the higher. A market that ran up during construction does not hand the assignee extra borrowing room.
- 03Rental add-back conventions apply even with no signed lease — the 50% offset here is exactly the mechanism used on tenanted rental files, just triggered by an appraiser’s letter instead of a lease.
- 04Two different valuations serve two different purposes at the same closing. Mortgage sizing and provincial transfer tax can legitimately use different price figures on the identical file.
- 05The assignment fee is cash, not financing. Budget the $145,000 paid to the assignor and its 90-day paper trail separately from the down payment.
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.
- ▸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.
- ▸Property Transfer Tax Act, RSBC 1996, c. 378, ss. 3(1) and 3.01(4) — BC's property transfer tax: 1% / 2% / 3% marginal brackets.
- ▸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:
- ▸5.09% contract rate — rates move daily; not a quote.
- ▸50% rent add-back on a market-rent letter — each lender sets its own policy for rental income with no signed lease.
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.