Maximize Client Purchase Price: The Rental Income Strategy Your Bank Won't Tell You
Your client wants to keep their current home as a rental and buy a new one — but their bank only counts 50% of the rental income. There's a better way. Scott Dillingham reveals the rental worksheet strategy that lets…
Show notes
Your client wants to keep their current home as a rental and buy a new one — but their bank only counts 50% of the rental income. There's a better way. Scott Dillingham reveals the rental worksheet strategy that lets clients qualify based on 100% of actual rental income, unlocking significantly higher purchase prices.
The rental worksheet approach fundamentally changes how lenders calculate debt service ratios. Rather than treating half the rental income as a loss on paper, these programs allow brokers to input actual rental figures and subtract real expenses, resulting in a much smaller—or even positive—cash flow calculation. This difference can mean tens of thousands of dollars in additional purchasing power for qualified borrowers. Scott shares a compelling case study where a client was initially approved for only $250,000 through their bank, but after applying the rental worksheet program, qualified for $450,000—nearly double the original amount.
This strategy is becoming increasingly relevant as Canadian real estate markets experience longer selling times and more homeowners choose to hold onto their properties as investments rather than sell. With the ability to purchase a new primary residence with as little as 5% down payment while keeping an existing property as a rental, homeowners can build wealth through real estate without depleting their current equity position. The key distinction is that this program specifically applies when purchasing an owner-occupied primary residence while converting an existing home to rental property—a scenario that major banks simply cannot accommodate with competitive qualification amounts.
Scott emphasizes that these rental worksheet programs are not available through traditional banks and require working with mortgage professionals who have access to specialized lenders. For realtors, understanding this program creates a significant opportunity to help clients who might otherwise be stuck renting or unable to find suitable properties within their bank-approved budget. The episode underscores the value of seeking second opinions on mortgage pre-approvals, particularly when clients are navigating the transition from homeowner to landlord-investor.
Key Takeaways
- Traditional lenders use only 50% of rental income when qualifying borrowers who are converting their home to a rental property, creating an artificial debt shortfall that limits purchasing power
- Rental worksheet programs available through mortgage brokers can use up to 100% of rental income, potentially doubling qualification amounts compared to bank approvals
- Homeowners can purchase a new primary residence with as little as 5% down payment while keeping their existing property as a rental investment
- A real case study showed a client's approval jump from $250,000 at a bank to $450,000 using the rental worksheet program—an $200,000 increase in purchasing power
- This program is specifically designed for primary residence purchases where the borrower is renting out their previous home, not available through major banks
- Realtors can significantly increase deal closings by referring clients for second-opinion pre-approvals when rental conversion is involved
Links to Show References
- LendCity Mortgages: lendcity.ca
- Contact Scott Dillingham: scott@lendcity.ca
- Close More Deals Podcast: Available on major podcast platforms
- (00:00) - – Introduction to the Rental Worksheet Qualification Program
- (00:28) - – How Traditional Lenders Calculate Rental Income at 50%
- (01:15) - – Understanding the Rental Worksheet Advantage
- (01:52) - – Real Case Study: $250K Bank Approval vs $450K Broker Approval
- (02:45) - – Why This Program Isn't Available at Banks
- (03:12) - – Call to Action for Realtors
Transcript
Introduction
Welcome to the Close More Deals podcast for realtors, the no BS podcast that turns stalled real estate deals into signed contracts and flaky buyers into loyal clients. I'm your host, Scott Dillingham, a battle-tested mortgage expert who's closed over $2B+ in real estate transactions. Each week, I unpack proven lending programs, negotiation hacks, mindset shifts, and insider tools from top producers so you can close faster, earn bigger, and crush your goals. Ready to dominate?
Hit play and let's seal the deal. Welcome back to the Close More Deals podcast. I'm your host, Scott Dillingham. Today, I'm going to be talking to you about another amazing program.
I don't think there's a name for the program, but here's how it works. When you're buying your primary residence and you own a property that we're going to rent out, this program leverages that to qualify your borrower for much more money. So we're seeing this happen more and more and more because the market, you know, it's cooling and homes are taking longer to sell. So we're seeing a lot of clients say, you know what, instead of selling, let's just rent it out.
We'll buy a new one, right? Because they can, they can buy another one for just 5% down, providing it's your primary home. So how this program works is traditionally speaking, the banks and major lenders, when you do that and rent out your home, they'll use 50% of the rent. So let's just say your mortgage is 3000 a month, and you can also rent it for 3000 a month.
The Core Idea
They're only going to let us use 1500, which creates a shortfall on paper, of course, but it creates a shortfall and it makes it harder to qualify for because then they look at it like that's a $1,500 a month debt. So how this special program works is there's a few lenders and there's not a lot, I'm going to say five, maybe, maybe six that I can think of that do this as when you're buying a home to move into, they will allow us to use a rental worksheet.
So this is much better because rental worksheets, you can use up to 100% of the rental income. So we put in the rent, we subtract the mortgage, a couple of expenses. So instead of in this case, saying the loss was 1500, maybe it might actually be 500 a month when we factor in property taxes, all the other stuff that we have to in the calculator. So that's better.
So that extra thousand a month in this example can give your borrower much more purchasing power. Now let me give you a real case study. So there was a bank and I'm not going to call them out, but let's just say they have a blue logo. They approved a client for 250,000.
Now when this client's market, they couldn't find anything. So obviously if you're hearing this and you're in GTA, it's laughable, right? But there's smaller communities where, you know, you can still buy in this price range, but not quite the community where this client wanted to buy. So they were declined, they were going to rent.
Deep Dive
We ran the rental worksheet program and did their pre-approval because their realtor suggested they reach out to us for a second opinion. And we ran everything and we got them approved for 450. So now they actually can find something in their market. And I remember when I used to work at a bank, I remember hearing this sometimes when people doing this and I'm like, that broker, they must be doing something fraudulent.
Like they must, because how can you do that when we're at this amount and they're getting approved for that, but it's just tapping into special programs. So let us know. So if anybody, any of your clients are buying a primary home and they're going to rent out theirs, I promise you, our pre-approvals will be way higher than if you just let them walk into the bank. This program is not available through the banks.
They don't have it. So I promise you, you will get your client a much larger home. So obviously that means larger commissions for you, but it also means the client can find something that they want. In my instance, where I made that example, they couldn't find anything, right?
They wasn't enough. They couldn't buy. So they were going to rent and now they can buy. So anyways, I hope this adds a lot of value to you.
Practical Steps
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And we'll see you next week.
Thank you so much for tuning into the show today. If you found value, please follow the show and rate it five stars. It would mean the world to me.
And lastly, all the resources that we spoke about are at the bottom of the show notes. Looking forward to seeing you on the next episode.