A borrower, Michael, owns a rental property in Hamilton, Ontario, which generates $2,000 gross monthly rent. His expenses (property taxes, insurance, condo fees) total $800 monthly. When assessing Michael's income for a new mortgage application, how do most lenders typically 'add back' rental income from this property?

Question: A borrower, Michael, owns a rental property in Hamilton, Ontario, which generates $2,000 gross monthly rent. His expenses (property taxes, insurance, condo fees) total $800 monthly. When assessing Michael's income for a new mortgage application, how do most lenders typically 'add back' rental income from this property?

Answer options: ✅ They use a percentage (e.g., 50%) of the gross rental income, then add it to his qualifying income, ignoring the expenses on the rental property.

• They deduct the full $800 in expenses from the $2,000 gross rent to arrive at a net rental income, then add 80% of that net amount to his qualifying income.
• They add the full $2,000 gross rental income to his qualifying income without any deductions.
• They only consider rental income if it forms his primary source of income, otherwise it is disregarded.

Correct answer: They use a percentage (e.g., 50%) of the gross rental income, then add it to his qualifying income, ignoring the expenses on the rental property.

Explanation: Many lenders use a 'rental add-back' approach where they take a percentage (e.g., 50% or 80%) of the gross rental income and add it back to the borrower's income for qualification purposes, sometimes without considering property-specific expenses as individual line items, as per their specific guidelines.