Best canadian bank for multi-unit loans?

Question

Hi!

I started contacting banks to see how they handle multi-unit loans, and it seems like the offers differ a lot from one bank to the other. I'm talking not only about the interest %, but also the way they evaluate a property, the % you need as a downpayment, the number of units for the loan to be considered commercial, etc.

I was wondering if people who have a lot of experience with the various banks would have recommendations. Also, other than banks, what are the other sources of financing to look for in Canada, and more specifically Quebec? Other than the 6 big banks, are there any other institutions?

Thanks!

Roy N. · Answer

@Philippe Laurin

You need to speak with someone else at RBC. We financed a 5-unit with RBC last year under a residential mortgage.  Unless there has been a recent change RBC is underwriting 5-6 unit buildings <500 - 750K (pending on area) as residential.   They started this practice as a way to target the forgotten space between residential and where the commercial folks like to start ($1-2 million).

As Chad pointed out, you need to take residence to qualify for a high-ratio mortgage (10% or 5% downpayment) and those programmes are only available for residential mortgages.

Chad U. · Answer

@Philippe Laurin

If you don't plan on living in any of the units, then cannot qualify for 5% down.  However, I have seen some people operate in the "grey" area and sign an affidavit at closing stating that they or a family member will be living in the unit in order to qualify.

Philippe Laurin · Answer

@Roy N. , I'm not sure how many units yet. I always thought that 5 units was the line where it starts being considered commercial, but I contacted 3 banks so far and they all gave different numbers. For example, for RBC the cutoff is at  3+ units, for Desjardins it's 8+, and for TD it's 5+.

In any case, I'm not planning on living in any of the units, this is purely for investment purposes. So far it seems like I'll have to put 20% down, but if I can get as low as 5% with a residential loan I might go for several 3-4 units instead of one 5+ units. As long as the numbers add up and it cashflows, which is not easy to find around here (but that's another topic entirely).

@Chad Urbshott, I've never heard of First National, I'll see if they do business here.

@Gary McGowan, thanks for the tip, I'll also investigate the mortgage broker route.

Roy N. · Answer

Chad:

Do they lend in Québec now?

Chad U. · Answer

Hopefully multi unit pricing is better in Quebec than here in Ontario!  If you are looking at multi units, 5 units and above, you'll want to go through CMHC's program where you can put as low as 15% down at rates under 3%.  All banks will follow the same guidelines as outlined in CMHC's underwriting process.

Look into First National, they are a niche provider of financing for multi's in Canada

Roy N. · Answer

@Philippe Laurin

When you say multi-unit are you thinking 5+ units or 2-4 units?

The latter are residential properties and would be financed with w residential mortgage (fixed or variable).  If you are not planning to live in one of the units, most conventional lenders will require a 20% down payment.   If you are planning to live in a unit, you may qualify for a high-ration mortgage (10% down) or as a CMHC first-time homeowner (5% down).

If you are talking about true multi-unit properties (5+ units) you will be dealing with the commercial lending folks at any of the Big-5/6 banks or at a credit union.  There is a fair amount of variation between how individual lenders approach financing a deal.  In most cases, the commercial lending folks are not terribly interested in deals <$1million (credit unions will vary).   However, if you are looking at a 5 or 6 unit building under 750K in value, RBC (and, perhaps, TD) may underwrite it as a residential mortgage.

Gary McGowan · Answer

Every lender does it differently....

Talk to a mortgage broker that understands commercial financing. There must be 25+ lenders out there that only mortgage brokers have access to.