Add-back takes a share of the rental's gross (or, less commonly, net) rent and adds it directly to the borrower's other income — the same income line that also holds employment or self-employment earnings. GDS and TDS are then run against the combined total, against all of the borrower's debts, including the rental property's own mortgage payment, property tax and heat.
That last point is the one new agents most often miss: the rental property's full carrying cost stays on the debt side of the ledger in full. Only a slice of the rent moves to the income side to offset it.
CMHC's Income Property mortgage loan insurance — built specifically for 2-to-4-unit, non-owner-occupied small rental properties under $1,000,000 — allows up to 50% of gross rental income for the subject property to be included as income, alongside standard GDS/TDS ceilings of 39% and 44%, a minimum 20% down payment, and a minimum credit score of 600. That "up to 50%" phrasing matters: it's a program ceiling set by the insurer, not a promise that every lender operating under it uses the full amount on every file.
Because the full rental carrying cost counts as debt while only a slice of the rent offsets it, add-back can make a genuinely self-sustaining rental property look like a drag on the application. A property renting for exactly what it costs to carry will still add its full payment to the debt side while adding only a fraction of that back as income — which is precisely why the offset method, covered next, exists as an alternative way of framing the same economics.
This treatment is common on insured and insurable purchases — including owner-occupied multi-unit properties and CMHC's small-rental Income Property program — and it's also the default many conventional, uninsured A lenders apply to a new rental purchase. The exact percentage any individual lender applies within its own guidelines is that lender's own internal policy, and it can change without notice — which is exactly why this course teaches the category rather than a specific institution's current number.
An add-back file needs the purchase agreement, the rent evidence appropriate to whether it's a subject property or existing rental (Module 01), and the full mortgage, tax and heat figures for the rental property so the debt side of the calculation is accurate. Missing or estimating any one of these is a common reason an otherwise-solid add-back file comes back with questions.
Under an add-back approach, what happens to the rental property's own mortgage payment, property tax and heat?
Add-back is additive on both sides of the ledger — the rental's full carrying costs count as debt in full, while only a portion of the rent counts as income — which is exactly why a property that easily covers itself can still look tight under this method. The "ignored entirely" option is the tempting mistake for agents new to rental files, who assume that if rent equals or exceeds the mortgage payment, the debt simply washes out. It doesn't — under add-back, the debt stays on the ledger in full regardless of how well the property performs.
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