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How to Finance Your First Investment Property in Ontario

  • Writer: Greenell Properties Capital
    Greenell Properties Capital
  • Mar 20
  • 3 min read

Investing in real estate is one of the best ways to build wealth, but financing your first investment property can feel overwhelming. Whether you’re buying a rental property in Hamilton, Mississauga, or anywhere in the GTA, understanding mortgage options, down payment requirements, and lender criteria is key to securing the best deal.


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Here’s a step-by-step guide to financing your first investment property in Ontario.


  1. Save For a Downpayment


Unlike a primary residence, investment properties require a higher down payment.


How Much Do You Need?

  • 20% Down Payment: Required for most investment properties (to avoid CMHC mortgage insurance).

  • 5-10% Down Payment: Possible for owner-occupied properties (e.g., buying a duplex and living in one unit).

  • Alternative Financing: Some private lenders allow lower down payments but charge higher interest rates.


Investor Tip:


If you don’t have 20% saved, consider house hacking—buying a duplex or triplex, living in one unit, and renting out the others. This allows you to qualify for a lower down payment while generating rental income.


  1. Get Pre-Approved for a Mortgage


A mortgage pre-approval helps investors understand how much they can borrow and makes them more competitive in bidding situations.


Lender Requirements for Investment Properties:


  • Strong Credit Score: A score of 680+ is ideal.

  • Stable Income: Lenders prefer full-time employment or consistent rental income.

  • Debt-to-Income Ratio: Your monthly debts (including mortgages) should not exceed 40-44% of your income.

  • Rental Income Consideration: Some lenders allow 50-80% of projected rental income to qualify for a higher loan.


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Investor Tip:


Shop around! Compare rates from banks, credit unions, and mortgage brokers to find the best financing options.


  1. Explore Mortgage Options


There are different types of mortgages available for investment properties.


Traditional Financing (Best for First-Time Investors)


  • Fixed-Rate Mortgage: Stable monthly payments, ideal for long-term planning.

  • Variable-Rate Mortgage: Fluctuates with interest rates but may offer lower initial rates.


Alternative Financing (If You Don't Qualify with a Bank)


  • Home Equity Line of Credit (HELOC): Use equity from your primary home to fund your investment.

  • Private Lenders: Higher interest rates but easier approvals.

  • Vendor Take-Back Mortgage (VTB): The seller finances part of the purchase price, reducing the mortgage amount.


Investor Tip:


Consider using a HELOC on your existing home to cover the down payment on your first investment property.


4. Understand Closing Costs & Ongoing Expenses


Beyond the purchase price, investors need to budget for closing costs and property expenses.


Closing Costs (Typically 3-5% of Purchase Price):


  • Land Transfer Tax: Varies by location (Toronto has an extra municipal tax).

  • Legal Fees & Title Insurance: Around $2,000-$3,000.

  • Home Inspection: $400-$600 (optional but recommended).


Ongoing Expenses:


  • Property Taxes & Insurance

  • Mortgage Payments & Utilities

  • Repairs & Maintenance

  • Property Management Fees (if applicable)


Investor Tip:


Calculate your cash flow before buying! Use this formula:

Rental Income - (Mortgage + Property Taxes + Maintenance + Other Expenses) = Cash Flow


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5. Secure Your First Investment Property


Once financing is in place, it’s time to make an offer and close on your first property.


Steps to Take:


Find a Profitable Property: Look for high-demand rental areas like Hamilton, Mississauga, or Kitchener-Waterloo. Work with a Real Estate Agent: Choose one who specializes in investment properties. Negotiate Smartly: Factor in renovation costs and rental potential. Close the Deal & Find Tenants: Once purchased, focus on tenant screening and lease agreements.


Conclusion


Financing your first investment property in Ontario requires careful planning, a strong financial profile, and knowledge of mortgage options. By saving for a down payment, securing the right loan, and budgeting for expenses, you can make a profitable real estate investment.


Start preparing now, and take the first step toward building wealth through Ontario real estate!

 
 
 

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