Legal vs Illegal Units
For a lender to count basement apartment income, the unit generally needs to meet local zoning and building code requirements, including a separate entrance, proper fire separation, and adequate ceiling height. An illegal unit may still generate rent, but most lenders will not include that income in your application.
How Much Income Gets Counted
Even for a legal unit, lenders typically use only a portion of the rental income, commonly in the range of 50 to 80 percent, to account for vacancy and expenses. The exact percentage depends on the lender and whether you already have a signed lease or are relying on a market rent estimate.
Documentation You Will Need
Be ready to provide a copy of the lease, proof the unit is registered as legal with the municipality if applicable, and possibly a market rent letter from an appraiser. Photos of the separate entrance and unit layout can also help support the file.
- Signed lease agreement
- Proof of legal registration
- Market rent appraisal if newly rented
Impact on Your Approval Amount
Including basement rental income can meaningfully increase how much mortgage you qualify for, sometimes enough to change your price range by a noticeable margin. This makes it worth confirming the unit's legal status early in your search rather than after you have made an offer.
Insurance Considerations
Beyond the mortgage, your home insurance policy needs to reflect that you have a rental unit in the home. Failing to disclose a basement rental to your insurer can create problems with a claim down the road, so this is worth addressing at the same time as your financing.
Frequently asked questions
- Do I need a bigger down payment for this type of property?
- In most cases yes, since lenders view these properties as carrying more risk than a standard owner-occupied home. The exact amount depends on the property type, the lender, and your overall financial picture, so it is worth getting a clear answer before you start shopping.
- Can I use projected rental income before I have a tenant?
- Some lenders will accept a market rent appraisal or lease commitment for this, while others want to see an existing lease in place. Rules vary quite a bit between lenders, which is one reason it helps to work with a broker who can compare options.
- How long does approval usually take?
- Timelines vary based on the complexity of the file and whether extra documentation like appraisals or building permits are needed. Starting the conversation early, before you are under a tight closing deadline, generally leads to a smoother process.