Adding a Secondary Suite to Your Home

Adding a Secondary Suite to Your Home: What You Need to Know

Adding a secondary suite to your home can provide numerous benefits, including extra income and increased property value. But are there differences between secondary suite requirements and those of residential properties in Canada? Are there financial incentive programs or secondary suite grants in Canada to help finance the construction of these units? Let’s explore the steps involved in adding a secondary suite to your home so you can make an informed decision that fits your financial situation and goals.

Secondary Suite Requirements

Adding a secondary suite to your home involves legal requirements that vary depending on location. These include:

Municipality Zoning By-Laws

Many municipalities have specific rules around secondary suites, including the maximum size, minimum ceiling height, and parking requirements.

Permits and Inspections

This includes building permits, electrical permits, plumbing permits, and fire and safety inspections. You may also need an occupancy permit before renting out your secondary suite.

Fire and Safety Regulations

You’ll need to ensure that your suite meets the secondary suite requirements for fire and safety, including fire separation between the main dwelling and the suite, smoke detectors, egress windows and carbon monoxide detectors.

It’s important to note that failure to comply with these secondary suite requirements can result in fines, legal action, and even the removal of your secondary suite.

Designing Your Secondary Suite

There are several steps involved when designing your secondary suite:

Decide the type of secondary suite you want to build. Several options are available, including a basement suite, an attached suite, or a detached suite. Your choice will depend on your specific needs and the layout of your property.

Consider the floor plan and layout of your suite. Ensure the suite is functional, with a separate entrance, living area, kitchen, and bathroom.

Ensure the suite meets legal requirements. Ensure the suite is within legal limits regarding size, ceiling height, and egress windows.

Choose flooring, lighting, and fixtures that are durable and easy to maintain. You’ll also want to consider soundproofing between the main dwelling and the suite to ensure privacy and reduce noise transfer.

Financing Your Secondary Suite

It’s essential to carefully consider your financing options and budget for your project. Working with a qualified contractor can help you accurately estimate the cost of your project and ensure that you stay within budget.

There are several options to finance your secondary suite:

Option 1: Take out a home equity loan or line of credit – These options allow you to borrow against the equity in your home, using it as collateral for the loan. Home equity loans typically have fixed interest rates and repayment terms, while a home equity line of credit – also known as a HELOC – offers more flexibility in borrowing and repayment.

Option 2: Take out a personal loan or use a credit card – These options can be more expensive in terms of interest rates, but they can be a good option for smaller projects or if you don’t have enough equity in your home.

Government Incentives and Rebates

Government incentives and rebates are available to homeowners who add secondary suites to their property. These incentives vary depending on your location and the type of secondary suite you’re building.

Sometimes, homeowners may be eligible for forgivable loans or secondary suite grants in Canada to help offset the allowable construction and permitting costs involved in creating one (or sometimes one or more) new secondary basement, garden, laneway home or garage suites, or to help pay for legalizing current basement or other similar units. A forgivable loan is one that won’t need to be paid back, provided the homeowner follows the terms of the program.

Programs are usually open only to Canadian citizens or holders of Permanent Resident status. They are also typically first-come, first-serve, meaning that once the funds allocated to the initiative have been used up, the program may cease to exist.

Eligibility can differ from province to province as well. Some provinces or municipalities may require homeowners to meet specific income and property requirements, that rents for the new suites remain at or below the area’s average market rent for a specified period that may also vary by region, that the new renters be a family member or relative over 65 years of age, etc., etc. ALL provinces and municipalities offering the programs require ALL secondary suites to meet local zoning and building regulations.

An example of some of the Secondary Suite Incentive (SSI) programs or Secondary Suite Grants in Canada include:

British Columbia

Secondary Suite Incentive Program – Forgivable Loan, Receive up to 50% of renovation costs, to a maximum of $40,000

Saskatchewan

Secondary Suite Incentive (SSI) Grant Program – Receive up to 35% of renovation costs, to a maximum grant of $35,000

Alberta

Calgary

Secondary Suite Incentive Program – Receive up to $10,000

Cold Lake

Secondary Suite Development Incentive Program – Receive $5,000

Ontario

Hamilton

Ontario Renovates Secondary Suite – Forgivable Loan, Receive up to $50,000

Newfoundland & Labrador

Secondary and Basement Suite Incentive Program – Forgivable Loan, Receive up to 50% of renovation costs, to a maximum of $40,000

Nova Scotia

Secondary and Backyard Suite Incentive Program – Forgivable Loan, Receive up to 50% of renovation costs, to a maximum of $40,000

Tax breaks are also available to homeowners who create secondary suites in their homes. For example, the Multigenerational Home Tax Credit is a federal program that provides a non-refundable tax credit of up to $2,000 for eligible expenses incurred when converting a home into a more accessible and comfortable living space for elderly or disabled family members.

The Federal Government’s Budget 2024 Secondary Suite Initiatives

In Budget 2024 and Canada’s Housing Plan, the federal government announced a plan to build nearly four million homes by 2031.

Recent municipal zoning reforms in Canada’s major cities, made possible through Housing Accelerator Fund agreements, are already creating new opportunities for homeowners to add secondary suites and increase housing density. New rental suites will provide more homes for Canadians and could provide an important source of income and community connections for seniors who choose to age at home.

The federal government also recently announced its intention to make targeted changes to mortgage insurance rules to encourage densification and enable homeowners to add more units to their homes.

These changes will:

Allow refinancing of insured mortgages for secondary suites to let homeowners access the equity in their homes to finance the construction of secondary suites. Borrowers will be able to access financing of up to 90% of the home value, including the value added by the secondary suite(s), and amortize the refinanced mortgage over a period of up to 30 years.

Increase the mortgage insurance home price limit to $2 million for those refinancing to build a secondary suite to ensure homeowners can access this refinancing in all housing markets across the country.

Measures are effective as of January 15, 2025, and apply to all borrowers seeking to access mortgage insurance in Canada to add more secondary suites.

These borrowers must satisfy the following requirements:

Ownership: Borrowers must already own their properties

Occupants: The borrower or a close relative must occupy one of the current units

Intent: The borrower intends to construct additional units, and,

Type: The additional unit(s) must not be used as a short-term rental

Refinancing: Insured refinancing will be allowed for the purpose of building additional unit(s).

Legal units: The new units must be fully self-contained units (e.g., basement suites with separate entrances or laneway homes) and meet municipal zoning requirements.

Number of units: Maximum of FOUR dwelling units, including the existing unit.

Maximum Property Value Limit: The “as improved” value of the eligible residential property against which the loan is secured must be less than $2 million.

Maximum Loan-to-Value limit: Up to 90% of the property value, including the value added by the secondary suite(s), in combination with any other outstanding loans secured by the property.

Maximum amortization: 30 years.

Additional financing: Must not exceed the project costs.

H2 Building Your Secondary Suite

When building a secondary suite, hire a qualified contractor who has experience in building secondary suites. Look for licensed and insured contractors with experience with the type of secondary suite you want to build.

Throughout the construction process, you must oversee everything to ensure the project stays on track. This includes working closely with your contractor to create a detailed timeline and budget for the project, obtaining all necessary permits and inspections, and monitoring the construction process to ensure that it stays on schedule and within budget. You should also communicate regularly with your contractor and be available to answer any questions or concerns that arise during the construction process.

Adding a secondary suite to your home can be a rewarding investment. Still, seeking professional advice and carefully considering the costs and benefits before embarking on the project is essential. With proper planning and execution, a secondary suite can provide long-term financial benefits and improve the livability of your home. Talk to your financial advisor today to discuss the possibility of building a secondary suite.