- Adding a second unit to a house requires a building permit and a separate electrical permit, and municipal zoning by-laws also apply.
- Lenders look at whether the suite is properly built and permitted, so keep your permits and inspection records.
- For an insured loan on a two-unit owner-occupied home, up to 100% of gross rental income may be used; for three or four units the rule differs.
- Insurance and lender conditions vary, so confirm them before you rely on rent to qualify.
A basement apartment can help you qualify for a mortgage or cover the payments, but lenders and insurers do not simply accept a landlord's word that the suite exists and is safe. They tend to ask whether it is legal, built to code and insured.
This article walks through the main questions in plain terms: whether the suite is legal, what the Building Code expects, how rental income is counted, and what to check before you buy or refinance. Details vary by lender and by municipality.
Is the basement apartment legal?
Legality has two sides. One is the Ontario Building Code, which governs how the unit is built. The other is local zoning, which governs whether a second unit is allowed on your lot at all.
Adding a second unit in a house requires a building permit and a separate electrical permit, and municipal zoning by-laws also apply. Registration and licensing rules vary from one municipality to another, so call your city or town to confirm what applies to your address.
If you are buying a home that already has a suite, do not assume it is permitted just because it is rented. Ask the seller for permits, inspection records and any municipal approvals, and ask a lawyer to check them before you close.
Building Code points lenders may care about
A lender or appraiser may ask whether the suite meets basic safety standards. The following are some of the points the Ontario government lists for second units in a house.
| Topic | What the guidance says |
|---|---|
| Permits | Building permit and separate electrical permit |
| Basement ceiling height | A basement second unit may have a 1.95 m ceiling height over the required floor area |
| Alarms | Smoke alarms, and carbon monoxide alarms where there are fuel-burning furnaces or attached garages |
| Exits | A window providing a second means of escape where the exit leads through another unit |
| Fire separation | Dwelling units of two or more storeys including basements must be separated from the rest of the building by a fire separation of not less than 1 h fire-resistance rating, with exceptions |
Whether your suite meets these requirements is a technical question for your municipality, a qualified contractor or an inspector. The fire code and other requirements may also apply, so confirm them locally.
How lenders count rental income
Many buyers want the suite income to count toward qualifying. Rules differ between lenders, and between insured and uninsured mortgages. For owner-occupied homes with an insured loan application, CMHC's guidance is as follows.
- Two units: up to 100% of gross rental income may be used.
- Three or four units: either up to 50% of gross rent or the net rental income approach.
Lenders typically want evidence of the rent, such as a lease or an appraiser's estimate. A lender may also treat rent differently if the unit is not legal. Ask the lender, or a mortgage broker, how it treats suite income before you make an offer.
Insured mortgage limits have also moved. Effective December 15, 2024, the insured mortgage price cap rose from $1 million to $1.5 million, and 30-year insured amortizations were extended to all first-time homebuyers and all new builds. These rules may change again, so check current terms.
Insurance and other lender conditions
Home insurance matters because a lender generally expects the property to be insured. An insurer may ask whether part of the home is rented, whether the suite has its own entrance, and whether it is legal. Disclosing the suite accurately is important, since an undisclosed rental could cause problems at claim time. Ask your insurer and your lender what they require, in writing if possible.
Other conditions vary. A lender may require proof of permits, a satisfactory appraisal, a copy of the lease, or a particular type of property insurance. These are lender policy, not a single legal rule.
If a conventional lender will not finance the property, some buyers turn to private lenders. A private lender and a mortgage broker must follow disclosure requirements: private lenders must receive the prescribed Form 1 disclosure signed by a licensed broker, and fees must be paid to the brokerage and disclosed in writing. Under the Criminal Code, interest includes fees and bonuses, not just the stated rate, and a criminal rate is an annual percentage rate above 35 per cent. Read all fees carefully.
What to do next
- Ask your municipality whether a second unit is allowed at your address and what permits it needs.
- Collect building permit, electrical permit and inspection records for the suite.
- Ask your lender or broker, before making an offer, how it treats suite rent.
- Tell your insurer about the suite and confirm coverage in writing.
- Have a lawyer review the purchase agreement, title and any conditions about the suite.
- Compare lenders' written terms, including all fees.
Frequently asked questions
Do I need a permit for a basement apartment in Ontario?
Adding a second unit in a house requires a building permit and a separate electrical permit. Municipal zoning by-laws also apply, so check with your municipality.
Can I use the rent from my basement suite to qualify for a mortgage?
Often, but it depends on the lender. For an insured loan on an owner-occupied two-unit home, up to 100% of gross rental income may be used under CMHC's guidance. Ask the lender how it treats rent, especially if the unit is not documented as legal.
What safety features does a basement second unit need?
The Ontario government lists smoke alarms and, with fuel-burning furnaces or attached garages, carbon monoxide alarms. A window may be required as a second means of escape where the exit leads through another unit. A fire separation of not less than 1 h fire-resistance rating is generally needed, with exceptions.
Will my insurance cover a rented basement?
It depends on your insurer and policy. Tell the insurer about the suite and ask what it requires. Do not assume a standard homeowner policy treats rental space the same way.
Sources
- Criminal Code, s. 347 (Justice Laws) — Justice Laws (federal)
- Ontario.ca – Add a second unit in your house — ontario.ca
- Ontario.ca – 2024 Building Code Compendium, Part 9 — ontario.ca
- CMHC – Rental income — cmhc-schl.gc.ca
- Department of Finance Canada – The Boldest Mortgage Reforms in Decades — canada.ca
- FSRA – Mortgage brokerage disclosure requirements — fsrao.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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