Using Rental Income to Qualify for a Cottage Mortgage: What Lenders Actually Allow
For many Canadians, buying a cottage is a dream—one filled with long weekends on the dock, quiet escapes from the city, and building generational memories. But that dream often comes with a hefty price tag, and buyers are increasingly looking at short-term rental income (via platforms like Airbnb or VRBO) to help offset the cost.
The idea is simple: you use the property when you want it, and rent it out the rest of the time. But how exactly does this rental income affect your ability to qualify for a mortgage?
The answer depends on the lender—and the type of cottage.
This guide will walk you through what lenders actually allow when it comes to using rental income to qualify for a second home or cottage mortgage, especially in Ontario.
First, Understand the Two Main Types of Cottage Properties
Before we talk about income, we need to define the type of property you're buying. This distinction is critical in how lenders approach your mortgage application:
1. Type A Cottage (Full Access / Year-Round)
Year-round road access
Permanent heat source
Potable water
Foundation
Often considered “second homes”
Treated similarly to primary residences for mortgage purposes
2. Type B Cottage (Seasonal / Remote / Water-Access Only)
May be accessible only by boat or snowmobile
May lack year-round plumbing, heating, or road access
May not have a permanent foundation
Higher risk from the lender’s perspective
Lenders are more lenient with Type A properties when it comes to using rental income. Type B? Not so much.
Can You Use Rental Income to Qualify for a Cottage Mortgage?
Yes—but only under certain conditions. Many lenders will allow you to use projected or existing rental income from your cottage property to help you qualify for financing. However, the policies are not uniform across the board.
Let’s break down the different approaches lenders use:
1. Traditional Lenders (Big Banks)
Canada’s major banks (like RBC, TD, Scotiabank, BMO, and CIBC) tend to be the most conservative. Here’s what you can generally expect:
Owner-Occupied Second Homes Only: Many big banks will only allow rental income if the property is primarily owner-occupied. That means you must use it yourself for part of the year.
Proven Rental Income Required: They may require:
Two years of rental income shown on your T1 Generals or Notice of Assessments
Proof that the property is already generating income (if you’re buying an existing Airbnb)
No Use of “Projected” Income: Most traditional lenders will not allow you to simply estimate how much you think the property could earn.
Cap on Rental Income Used: Some lenders will allow only 50% of proven rental income to be added to your qualifying income.
Bottom line: If you’re relying heavily on rental income to qualify, a traditional lender might not be the right fit.
2. Monoline Lenders & Mortgage Broker Channel
Alternative and monoline lenders (the ones mortgage brokers work with) tend to be more flexible.
They may allow:
Use of Market Rent Appraisal: If the property is not yet earning income (because you’re buying it), they may accept a market rent appraisal. This is a third-party appraisal that estimates fair rental value.
80% Add-Backs or Offset Models: Some lenders use an "add-back" method, where 80% of gross rent is added to your income. Others use an offset model where 50%–80% of rental income is used to offset the mortgage payment.
More Flexible Property Types: Some brokers have access to lenders who will consider Type B cottages (seasonal or water-access-only) with rental income, especially if the borrower has strong overall financials.
Pro Tip: If you plan to Airbnb the property, tell your mortgage broker. Some lenders view short-term vs. long-term rentals very differently.
3. Credit Unions
Local credit unions (especially in cottage country) often have an intimate understanding of the local market. Some will:
Consider projected rental income with a strong business case
Finance more “rustic” or seasonal properties
Work with self-employed buyers who may struggle with traditional income documentation
However, policies vary significantly between credit unions—so a conversation with a broker or the lender directly is key.
What Rental Income Will Lenders Not Count?
There are situations where lenders will completely disregard rental income:
If the property is zoned for personal use only
If the rental income is purely projected, with no proof or appraised value
If you don’t have a plan for managing the property (especially for short-term rentals)
If the property is too remote or lacks basic access/utilities
Some lenders are also hesitant to support short-term rentals due to regulatory changes in places like Ontario and B.C., where municipalities are cracking down on Airbnb-type use.
Common Documentation Lenders Require
To include rental income in your qualification, you may need:
A signed lease or rental agreement
T1 Generals showing rental income (from your accountant or CRA)
A market rent appraisal
Business license (if Airbnb-style)
Statements from rental platforms like Airbnb or VRBO showing historical income
Confirmation of zoning that allows rental use
What About Down Payment?
Using rental income doesn’t reduce your required down payment. For Type A cottages, lenders may allow as little as 5–10% down (depending on usage and insurance availability). For Type B or remote properties, expect to need 20%–35% down, even with rental income in play.
Is It Worth It?
If your goal is to offset ownership costs and use that to support your mortgage qualification, leveraging rental income is a powerful tool—but it requires planning, documentation, and the right lender.
Here's when it's especially helpful:
You're purchasing a higher-priced cottage and want to stretch your qualifying power
You have limited income on paper but are comfortable taking on the payments
You're buying a property that's already a proven income-generator
You're working with a knowledgeable mortgage broker who knows which lenders allow what
Get Professional Advice
Hello, I’m David Pipe. At WealthTrack, we can help you reach your financial goals — book a free 15-minute call with us today to find out how to get started.
Final Thoughts
Using rental income to qualify for a cottage mortgage is absolutely possible in Canada—but not universally accepted. Traditional lenders tend to be strict, requiring existing income and full documentation. Monoline lenders and mortgage brokers offer more flexibility, especially when supported by a market rent appraisal or strong borrower profile.
The key is aligning your expectations with what lenders are actually willing to underwrite—and planning in advance.
If you’re considering using rental income to buy your dream retreat, speak with a mortgage professional early in the process. They’ll help you:
Identify the right lender based on your cottage type
Strategically present your rental income
Ensure the property meets lender guidelines
Secure competitive financing with confidence
With the right plan, your cottage can be both a relaxing getaway and a smart financial investment.
