The client
A salaried couple wanted a second property in the Kelowna market to operate as a short-term rental part of the year, with a third-party market analysis projecting solid nightly-rate income. Their own bank saw the plan differently.
Borrowers
Salaried couple, combined $114,000/year
$9,500/mo for the ratio math
Existing debt
Auto loan, $540/mo
No other consumer debt
New purchase
$680,000 Kelowna vacation property
Not intended as their principal residence
Down payment
$136,000 — 20%
Conventional; no default insurance required
Rent projection
$3,600/mo
Third-party market-rent analysis, short-term-rental basis
The problem
Their own bank’s policy for a second property intended for short-term/vacation rental was blunt: zero credit for any projected rental income without a signed long-term lease. No add-back, no offset, nothing — the property’s carrying costs went straight onto the liability side with no income to weigh against them.
The zero-credit arithmetic
- ▸Qualifying payment at the stress-tested rate: $3,841/mo, plus $340 property tax and $140 heat
- ▸Against the combined salaried income alone ($9,500/mo) plus the $540 auto loan
- ▸Total debt service ratio: 51.2% — well over the 44% ceiling. Declined.
The couple’s income was never in question — the issue was purely how this particular A-lender treats short-term-rental income on a second property. Not every lender refuses it outright; this one simply does.
The numbers
The purchase is conventional at 20% down, so GDS/TDS caps here are each lender’s own underwriting policy rather than a CMHC-insured maximum — both lenders on this file used the same 44% TDS ceiling CMHC applies to insured files as their benchmark.
| Structuring the purchase | Amount |
|---|---|
| Purchase price | $680,000 |
| Down payment (20%) | −$136,000 |
| Mortgage (conventional, 80% LTV) | $544,000 |
| Rate & payments | Figure |
|---|---|
| Contract rate — 5-year fixed (illustrative, not a quote) | 5.09% |
| Minimum qualifying rate — greater of contract + 2% and 5.25% | 7.09% |
| Monthly P&I at the qualifying rate | $3,841 |
| Monthly P&I at the contract rate | $3,192 |
Two rental-income treatments, same file
| TDS line | A-lender — 0% credited | B-lender — 50% credited |
|---|---|---|
| Housing costs (new property) | $4,321 | $4,321 |
| Auto loan | $540 | $540 |
| Income used | $9,500 (salaried only) | $11,300 (incl. $1,800 rental credit) |
| TDS vs. the 44% ceiling | 51.2% ✗ | 43.0% ✓ |
The B-lender’s published policy credits 50% of the third-party $3,600/mo market-rent projection toward income — $1,800/mo — without touching the liability side at all. That single change swings TDS more than eight points and clears the ceiling with roughly one point of headroom. Qualifying at the stress-tested rate costs $649/mo more than the payment the buyers will actually make at the contract rate.
The solution
A BC submortgage broker did two things once the decline arrived.
First, diagnosed the decline as a policy issue, not an income issue. The bank’s “no” said nothing about the borrowers’ ability to carry the debt — it was a statement about how that one institution treats short-term-rental income on a non-owner-occupied second property.
Second, moved the file to a B-lender with a published short-term-rental policy. The spectrum of lenders willing to even look at this kind of income is mapped in our comparison of A, B and private lenders. This lender’s published treatment credits half of a third-party market-rent projection, with the other half held back as a buffer against vacancy and platform fees.
The outcome & the closing math
Approved and funded: conventional at 80% LTV, 25-year amortization, on a 5-year fixed term.
| Cash due at closing (beyond the down payment) | Amount |
|---|---|
| BC Property Transfer Tax on $680,000 — 1%/2%/3% marginal brackets; no first-time-buyer exemption, since the property will not be the borrowers’ principal residence | $11,600 |
| Legal fees, appraisal & adjustments | varies |
What to take from this file
- 01Not every lender treats short-term-rental income the same way — some give it zero credit. Confirm a lender’s specific short-term-rental policy before submitting, rather than assuming any rental-income treatment applies.
- 02The approval math runs at the qualifying rate, not the contract rate. This file qualifies at 7.09% and pays at 5.09% — a $649-a-month gap.
- 03A 50% credit against a market-rent projection is illustrative, not universal. Each B-lender publishes its own share and its own evidentiary bar for the projection itself.
- 04Budget the transfer tax on a second/vacation property like any other purchase. No first-time-buyer exemption applies when the property will not be the buyer’s principal residence, regardless of whether it is their first purchase ever.
- 05A decline is a data point about one institution’s policy — not a verdict on the property or the borrowers.
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.
- ▸A-lender's zero-credit policy on short-term-rental income — not every lender treats short-term/vacation-rental income the same way.
- ▸B-lender's 50% credit against a market-rent projection — each B-lender publishes its own discount and evidentiary requirements.
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.