If you’re buying your first investment property and trying to figure out how to finance it, I get it. It’s confusing. There are way more options than most people realize, and nobody lays them all out in one place. Banks certainly won’t tell you about the alternatives. They’ll just say “here’s what we offer” and hope you don’t ask questions.
I’m going to fix that right now. By the end of this article, you’ll know every major financing option available to you as a first-time real estate investor in Canada. You’ll understand who each one is for, what it costs, and when it makes sense. Then you can pick the one that actually fits your situation instead of just taking whatever your bank offers. To help narrow your choices, review our guide on which LendCity financing program is right for you.
Let’s get into it.
Not sure which financing path makes sense for your first investment property? Let’s review your down payment, income situation, and investment goals to identify the best option.
Option 1: CMHC-Insured Mortgages (As Low as 5% Down)
This is the one most people start with, and for good reason. If you’re going to live in the property, you can put as little as 5% down and get a mortgage insured by CMHC (Canada Mortgage and Housing Corporation) or one of the other default insurers like Sagen or Canada Guaranty.
Here’s the catch: the property must be owner-occupied. You can’t buy a pure rental with CMHC insurance. But you absolutely can buy a property you live in that also generates rental income.
This is why house hacking is so powerful for first-time investors. You buy a duplex, triplex, or fourplex. You live in one unit. You rent the others. CMHC will insure this up to four units as long as you occupy one of them. Our guide comparing single-family vs multifamily properties breaks down the exact down payment requirements and cash flow potential for each configuration.
The insurance premium gets added to your mortgage. It ranges from 2.8% to 4.0% of the mortgage amount depending on your down payment size. On a $400,000 mortgage with 5% down, you’re looking at roughly $15,200 in insurance premiums rolled into your loan. That sounds like a lot, but it gives you access to the lowest interest rates in the market and lets you get into real estate with minimal cash.
Who this is for: First-time buyers willing to live in a multi-unit property. You need a minimum credit score of 600 (higher is better), provable income, and your debt ratios need to work.
What you need: 5-19.99% down payment, strong credit, verifiable income, the property must pass CMHC’s requirements.
Option 2: Conventional Financing (20%+ Down)
If you have 20% or more to put down, you don’t need mortgage insurance. This opens up pure rental properties—you don’t have to live there.
Conventional financing through an A lender (banks, credit unions, monoline lenders) gives you the best rates after CMHC-insured products. You’ll typically see rates 0.10-0.30% higher than insured rates, which is a small premium for the freedom to buy a dedicated rental property.
The qualification process is the same as any other A lender mortgage. You need strong credit (ideally 680+), verifiable income, and your debt service ratios need to work. The lender will stress test your income at the qualifying rate (typically the contract rate plus 2%, or the benchmark rate, whichever is higher).
One thing that trips up new investors: lenders only count a portion of your rental income when calculating your ratios. Most A lenders use 50-80% of the gross rental income. So if the property rents for $2,000/month, the lender might only count $1,000-$1,600 toward your income. This is called a rental offset or rental add-back. The exact percentage depends on the lender, which is why working with a broker matters—different lenders treat rental income very differently.
Who this is for: Investors with 20%+ down payment, good credit, and provable income who want to buy a dedicated rental property.
What you need: 20% minimum down payment, 680+ credit score (ideally), T4 or T1 income documentation, property must meet lender guidelines.
Option 3: B Lender Products
Now we’re getting into the options your bank will never mention. B lenders are alternative lenders that serve borrowers who don’t quite fit the A lender box. And there are a lot of reasons you might not fit that box even if you’re financially responsible.
Maybe you’re self-employed and your income looks different on paper than it does in reality. Maybe you have a bruised credit score from a past rough patch. Maybe your debt ratios are slightly over the A lender limits because you already own a property or two.
B lenders are more flexible. They’ll look at your overall financial picture rather than checking rigid boxes. The trade-off is higher rates—typically 1-2% above A lender rates—and often a lender fee of 1% of the mortgage amount. Understanding the differences between A lenders and B lenders helps you decide which route makes sense for your situation.
Here’s what makes B lenders valuable for investors: many of them will use stated income programs. Instead of proving every dollar with T4s and tax returns, you state your income and the lender verifies that it’s reasonable for your occupation. This is huge for self-employed investors whose taxable income is low because they write off everything.
B lenders also tend to be more generous with how they count rental income. Some will use 100% of rental income in their calculations, compared to the 50-80% most A lenders use.
Who this is for: Self-employed investors, those with credit scores between 550-680, investors whose debt ratios are tight, anyone who doesn’t fit the A lender mold.
What you need: Typically 20% down (some programs allow less), income verification varies by program, reasonable credit history.
Option 4: Private Lending
Private lenders are individuals or companies that lend their own money secured against real estate. They don’t care about your income. They don’t care about your credit score (much). What they care about is the property itself and the equity position.
Private lending is expensive. Rates typically run 8-15%, and there’s usually a lender fee of 2-3% on top. On a $300,000 mortgage, that fee alone is $6,000-$9,000. Monthly payments are often interest-only.
So why would anyone use private lending? Because sometimes it’s the only option—and sometimes it’s the smartest one.
If you find an incredible deal that needs to close in two weeks, a private lender can fund it. If you’re doing a BRRRR and need short-term financing for the purchase and renovation, private lending or bridge loans bridge the gap until you can refinance into a conventional mortgage. If you have complicated income or credit issues, a private lender gets you in the door while you sort things out.
The key with private lending: always have an exit strategy. You should never plan to stay in a private mortgage long-term. It’s a tool, not a destination. Use it for 6-12 months, then refinance into a cheaper product.
Who this is for: Investors who need speed, have unconventional situations, or are executing BRRRR strategies that require short-term financing.
What you need: Typically 20-35% down (equity is king), a clear exit strategy, the property must have strong value.
Option 5: Vendor Take-Back (VTB) Mortgages
This is one of the most underused financing tools in Canadian real estate, and I wish more investors knew about it.
A vendor take-back mortgage is when the seller finances part of the purchase price. Instead of getting all their money at closing, the seller acts as the lender for a portion. You make payments to them just like you would to a bank.
Here’s an example. You’re buying a property for $500,000. You get a first mortgage from a bank for $375,000 (75% LTV). You have $75,000 for a down payment (15%). That leaves a $50,000 gap. The seller agrees to carry a VTB second mortgage for that $50,000 at 6% interest, payable over three years.
You just bought a property with less cash out of pocket, and the seller got their asking price plus ongoing interest income. Everyone wins.
VTBs work especially well when buying from motivated sellers, landlords who are retiring and want ongoing income, or in situations where the property needs work and wouldn’t appraise high enough for a traditional mortgage to cover the full amount.
The challenge is that not every seller will agree to a VTB, and your first mortgage lender needs to approve the arrangement. Some lenders won’t allow a second mortgage behind theirs. Your broker needs to know which lenders are VTB-friendly.
Who this is for: Creative investors who are comfortable negotiating directly with sellers and want to reduce cash required at closing.
What you need: A willing seller, a first mortgage lender that permits secondary financing, a clear agreement drafted by a real estate lawyer.
Option 6: DSCR (Debt Service Coverage Ratio) Programs
DSCR programs are relatively newer to Canada and they’re changing the game for investors. Instead of qualifying based on your personal income, DSCR programs qualify you based on the property’s income.
The lender looks at one simple question: does the rental income cover the mortgage payment and expenses? If the property’s net operating income is at least 1.0-1.2 times the mortgage payment, you qualify. Your personal T4 income, your job, your other debts—none of it matters the way it does with a traditional mortgage.
This is massive for investors who are self-employed, who already own multiple properties and have maxed out their personal ratios, or who simply earn their income in ways that don’t show up neatly on a T4.
DSCR rates are higher than A lender rates—usually in the B lender range or slightly above. Down payment requirements are typically 20-25%. But the trade-off of not needing personal income verification is worth it for many investors.
Who this is for: Self-employed investors, portfolio investors who’ve maxed out traditional qualification, anyone whose personal income doesn’t reflect their ability to service debt.
What you need: 20-25% down, a property with strong enough rental income to cover expenses and debt service, the DSCR ratio must meet the lender’s minimum threshold.
Wondering if your income situation calls for a B lender, DSCR program, or traditional A lender financing? We’ll assess your specific scenario and show you exactly which programs you qualify for.
Side-by-Side Comparison
Here’s everything in one table so you can compare at a glance:
| Feature | CMHC Insured | Conventional | B Lender | Private | VTB | DSCR |
|---|---|---|---|---|---|---|
| Min. Down Payment | 5% | 20% | 20% | 20-35% | Varies | 20-25% |
| Interest Rate Range | Lowest | Low | Moderate | High (8-15%) | Negotiable | Moderate-High |
| Credit Score Needed | 600+ | 680+ | 550+ | Flexible | N/A | Flexible |
| Income Verification | Full | Full | Flexible/Stated | Minimal | N/A | Property-based |
| Owner-Occupied Required | Yes | No | No | No | No | No |
| Max Property Units | 4 | 4 | 4 | No limit | No limit | Varies |
| Speed to Close | 30-45 days | 30-45 days | 2-4 weeks | 1-2 weeks | Depends on deal | 2-4 weeks |
| Best For | House hackers | Traditional investors | Self-employed | BRRRR, speed deals | Creative deals | Portfolio investors |
So Which Option Should You Pick?
Here’s my honest take, based on working with hundreds of first-time investors.
If you can house hack, start with CMHC. The 5% down payment requirement is unbeatable. Buy a duplex or triplex, live in one unit, rent the rest. You get into real estate with minimal cash, the lowest rates, and you start learning the landlord business with training wheels on. This is the single best first move for most new investors.
If you have 20% saved and strong income, go conventional. Buy a dedicated rental property with an A lender mortgage. Clean, simple, low cost. This is the bread-and-butter approach.
If your income is messy or your credit isn’t perfect, talk to a broker about B lenders. Don’t let imperfect paperwork stop you from investing. B lenders exist for exactly this situation, and the rate premium is manageable.
If you find an amazing deal that needs to close fast, consider private. But only if you have a clear exit plan to refinance within a year.
If you’re negotiating directly with a seller, bring up VTBs. It doesn’t cost anything to ask, and it can make a deal work that otherwise wouldn’t.
If you’re self-employed or already own several properties, explore DSCR. It might be the only way to keep scaling without hitting a wall on personal qualification.
And here’s the real secret: you don’t have to pick just one. The most successful investors I work with use different financing tools for different deals. Your first property might be CMHC insured. Your second might be conventional. Your third might use a VTB to bridge a gap. Being flexible with financing is what separates investors who own one or two properties from those who build real portfolios.
Your Next Step
You now know more about investment financing options than most people who already own rental properties. That’s not an exaggeration. Most investors just go to their bank and take whatever they’re offered without knowing what else exists.
Don’t be that investor. Talk to a mortgage broker who works with investors every single day. Someone who knows which lenders count rental income most favorably, which ones allow VTBs, which ones have DSCR programs, and which ones will work with your specific situation.
That’s what we do at LendCity. We’ve helped hundreds of first-time investors figure out the best financing path for their first deal. If you’re ready to stop researching and start investing, let’s talk. And when you’re ready to scale beyond a few single-family rentals into multifamily buildings with 5+ units, our MLI Select financing guide covers access to up to 95% financing and 50-year amortizations through CMHC programs.
Ready to move from planning to action? Book a call and we’ll create a customized financing roadmap for your first investment property based on your exact financial situation.
Key Takeaways:
- Option 1: CMHC-Insured Mortgages (As Low as 5% Down)
- Option 2: Conventional Financing (20%+ Down)
- Option 3: B Lender Products
- Option 4: Private Lending
- Option 5: Vendor Take-Back (VTB) Mortgages
Frequently Asked Questions
Can I use my RRSP for a down payment on an investment property?
How much rental income will the lender count toward my qualification?
Do I need to have landlord experience to get approved for an investment property mortgage?
What credit score do I realistically need to buy an investment property?
Can I buy an investment property with no money down?
Should I get pre-approved before looking at investment properties?
What's the difference between a mortgage broker and going directly to my bank?
How does the mortgage stress test apply to investment properties?
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Consult a licensed mortgage professional before making any financing decisions.
Written by
LendCity
Published
February 15, 2026
Reading time
13 min read
Private Mortgage
A mortgage from a private lender rather than a traditional bank, typically with higher rates but more flexible qualification requirements.
B Lender
Alternative lenders that serve borrowers who don't qualify with major banks, offering slightly higher rates with more flexible criteria.
BRRRR
Buy, Rehab, Rent, Refinance, Repeat - a real estate investment strategy where you purchase a property below market value, renovate it to increase its [ARV](/glossary/after-repair-value-arv), rent it out, [refinance](/glossary/refinancing) to pull out your initial investment, and repeat the process with the recovered capital. Success depends on [forced appreciation](/glossary/forced-appreciation) and strong [cash flow](/glossary/cash-flow).
House Hacking
Living in one unit of a multi-unit property while renting out the others to offset your mortgage payments and living expenses.
Equity
The difference between a property's current market value and the remaining mortgage balance. If your home is worth $500,000 and you owe $300,000, you have $200,000 in equity. Equity builds through mortgage payments, [appreciation](/glossary/appreciation), and [forced appreciation](/glossary/forced-appreciation). See also [LTV](/glossary/ltv) and [Refinancing](/glossary/refinancing).
Multifamily
Properties with multiple dwelling units, from duplexes to large apartment buildings. Often offer better cash flow and economies of scale.
Refinance
Replacing an existing mortgage with a new one, typically to access equity, get a better rate, or change terms. Investors commonly refinance to pull out capital for purchasing additional properties (cash-out refinance) while retaining ownership of the original property.
Credit Score
A numerical rating (300-900 in Canada) that represents your creditworthiness, affecting mortgage rates and approval. 680+ is typically needed for best rates.
Stated Income
A mortgage program where income is stated rather than fully documented, designed for self-employed borrowers with complex income situations.
Rental Offset
Using a percentage of rental income (typically 50-80%) to help qualify for a mortgage by offsetting property carrying costs.
Interest Rate
The cost of borrowing money, expressed as a percentage. It determines how much you pay on top of the principal borrowed. Interest rates directly affect monthly payments, [cash flow](/glossary/cash-flow), and [DSCR](/glossary/dscr). See also [Amortization](/glossary/amortization).
Principal
The original amount of money borrowed on a mortgage, not including interest. Each mortgage payment includes both principal (paying down what you owe) and interest (the cost of borrowing). Over time, more of each payment goes toward principal as the loan balance decreases.
Property Management
The operation, control, and oversight of real estate by a third party. Property managers handle tenant screening, rent collection, maintenance, and day-to-day operations.
Seller Financing
A financing arrangement where the property seller acts as the lender, allowing the buyer to make payments directly to them instead of obtaining a traditional mortgage.
Vendor Take-Back
A Canadian term for seller financing where the vendor (seller) provides a mortgage to the buyer for part of the purchase price, often used to bridge financing gaps.
Mortgage Broker
A licensed professional who shops multiple lenders to find the best mortgage rates and terms for borrowers. Unlike banks, brokers have access to dozens of lending options.
Rental Income
Revenue generated from tenants paying rent on an investment property. Gross rental income is the total collected before expenses, while net rental income subtracts operating costs to show actual profitability.
Duplex
A residential property containing two separate dwelling units, either side-by-side or stacked. Duplexes are popular among beginner investors because they can house-hack by living in one unit while renting the other to offset mortgage costs.
Triplex
A residential property containing three separate dwelling units. Triplexes offer higher rental income potential than duplexes while still qualifying for residential mortgage financing in most cases, making them attractive to growing investors.
Fourplex
A residential property containing four separate dwelling units. Fourplexes represent the largest property type that typically qualifies for residential mortgage financing, offering strong cash flow potential while avoiding commercial lending requirements.
Carrying Costs
The ongoing expenses of holding a property, including mortgage payments, property taxes, insurance, utilities, and maintenance. Understanding carrying costs is essential during renovation periods when the property generates no rental income.
A Lender
A major bank or institutional lender offering the most competitive mortgage rates and terms but with the strictest qualification criteria, including full income verification and stress test compliance. Most investors use A lenders for their first four to six properties.
Monoline Lender
A financial institution that exclusively originates mortgage loans without offering other banking products. Monoline lenders often provide competitive rates and more flexible investor policies than big banks, accessed through mortgage brokers.
Second Mortgage
A subordinate loan taken against a property that already has a first mortgage. Second mortgages have higher interest rates due to increased lender risk and can be used to access equity without refinancing the first mortgage.
Mortgage Insurance Premium
The fee charged by CMHC or other insurers for mortgage default insurance on high-ratio mortgages. The premium is calculated as a percentage of the loan amount and can be added to the mortgage balance or paid upfront.
Hover over terms to see definitions. View the full glossary for all terms.