If your bank has turned you down for a residential mortgage because your debt ratios are too high, don’t give up. There’s another option you might not know about: commercial financing.
Commercial mortgages work completely differently than residential ones. And that difference could be the key to growing your real estate portfolio.
How Commercial Financing Actually Works
Here’s the big difference: residential mortgages focus on you and your personal income. Commercial mortgages focus on the property itself.
When you apply for a residential mortgage, the bank looks at your income, your debts, and calculates your debt ratios. If those numbers don’t work, you’re stuck.
But with commercial financing, lenders care way more about the property’s numbers. Can the building generate enough rental income to cover its costs? That’s what matters most.
This is similar to how investment property financing works in the US. The property needs to stand on its own.
Book Your Strategy CallWho Should Look at Commercial Mortgages?
Commercial financing makes sense for several types of investors:
- You own multiple properties and your debt ratios are maxed out
- You’re self-employed and don’t show traditional income on paper
- You want to buy larger multi-family buildings (six units or more)
- You’re building new rental properties from the ground up
The key is that you’re buying a property that generates rental income. Single-family rentals usually fall under residential rules. But once you get into duplexes, fourplexes, and apartment buildings, commercial options open up.
The CMHC MLI Select Program
One of the best programs for Canadian investors is the CMHC MLI Select program. This is specifically designed for rental properties.
Here’s what makes it powerful:
- Up to 95% loan-to-cost financing (you only need 5% down)
- Amortization periods up to 50 years (way lower monthly payments)
- You need a debt service coverage ratio of just 1.1
That debt service ratio means the property’s rental income needs to be 1.1 times the mortgage payment and other costs. That’s pretty easy to hit with the right property.
This program works especially well in cities like Edmonton where median rents are high. When you’re building new, you can design the building specifically to fit the program requirements.
Why Edmonton Works So Well
Edmonton has become a hot spot for this type of investing. The median rent sits around $1,665, which makes the numbers work really well for the MLI Select program.
Plus, Alberta generally welcomes landlords. The regulations are reasonable and the government wants rental housing built.
Many investors from expensive markets like Victoria and Vancouver are building their portfolios in Edmonton because the numbers actually make sense.
Get Your Property Pre-Qualified
Here’s a mistake many investors make: they find a property, get it under contract, and then apply for financing. Four to six weeks later, they find out it doesn’t work.
Smart investors do this backwards. They get pre-qualified first. And they analyze properties before making offers.
Good mortgage brokers who specialize in commercial deals have tools to analyze a property quickly. Within 24 hours, you can know:
- How much financing you can get
- What the terms will look like
- Whether the property fits CMHC programs
- If there are any gaps you need to fill
This saves you from wasting time on properties that won’t work. And it lets you move fast when you find a good deal.
Why Working with Investors Matters
When you’re choosing who to work with for commercial financing, experience matters a lot.
You want someone who is actually doing what you’re trying to do. If your mortgage broker is building multi-family properties themselves, they understand the process from the inside.
They know which builders to work with. They know how to structure deals to fit CMHC requirements. They’ve been through the process multiple times.
Compare that to walking into a bank and talking to someone who has never invested in real estate. They might be able to process your application, but they can’t really guide you.
Shop Around for Better Terms
Another benefit of working with a mortgage broker: you get access to multiple lenders.
When you go direct to one bank, you get their rates and their terms. Take it or leave it.
A broker can shop your deal around to different lenders. That competition gets you better rates, better terms, and more flexibility.
For commercial deals that can be hundreds of thousands or even millions of dollars, a small difference in your interest rate adds up fast.
Building Generational Wealth
The real goal here isn’t just to buy one property. It’s to build a portfolio that creates lasting wealth for you and your family.
Commercial financing opens doors that residential financing can’t. You can scale faster, buy bigger properties, and structure deals that actually cash flow from day one.
Whether you’re just starting out or you’re a seasoned investor looking to go bigger, understanding your commercial financing options changes the game.
Get your financing lined up before you start looking at properties. Work with people who have real experience. And build your portfolio strategically instead of just buying whatever you can get approved for.
Book Your Strategy CallFrequently Asked Questions
Commercial mortgages focus on the property’s ability to generate income, while residential mortgages focus on your personal income and debt ratios. With commercial financing, the property needs to stand on its own financially.
Yes. Even if a bank turns you down for residential financing due to high debt ratios, you may still qualify for commercial financing because it’s based on the property’s income potential rather than your personal debt situation.
It’s a CMHC program for rental properties that offers up to 95% financing, amortization periods up to 50 years, and requires only a 1.1 debt service coverage ratio. It’s designed specifically for investors building or buying multi-family rental properties.
With programs like CMHC MLI Select, you may only need 5% down (95% loan-to-cost). This varies by lender and program, but commercial financing often offers higher loan-to-value ratios than you might expect.
Absolutely. Getting pre-qualified and having properties analyzed before making offers saves you from wasting weeks on deals that won’t work. Most experienced brokers can analyze a property within 24 hours to tell you if it fits financing requirements.
Edmonton has strong rental rates (median around $1,665), landlord-friendly regulations, and the numbers work well for programs like CMHC MLI Select. The combination makes it attractive for out-of-province investors.
Generally, properties with five or more units fall under commercial financing rules. This includes apartment buildings, larger multi-family properties, and purpose-built rentals.
A mortgage broker gives you access to multiple lenders, which means better rates and terms through competition. Brokers who are also active investors bring valuable experience that bank employees typically don’t have.
