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BUYING WITH AS LITTLE AS 5% DOWN An innovative, consumer-oriented program that makes the dream of home ownership a reality for more Canadians than ever before.
What is it?
Two programs are available that let you buy a home for as little as a 5% down payment. One is administered by CMHC, a Federal Crown Corporation, and the other by Genworth Financial, a private sector insurer. Read carefully; the small print could create unexpected hitches!
Who is eligible?
Any qualified borrower who meets the following lending criteria:
A first time buyer who wishes to purchase a home below the "ceiling" established in that area for the First Home Loan Insurance.
OR
A non-first time home buyer who has less 10% more as a down payment
How it works
Both programs allow you to obtain a mortgage of up to 95% of the purchase price. Depending upon the percentage of down payment to be used, CMHC and Genworth Financial charge the following one-time insurance premium to you, the borrower. This premium can be added to the mortgage without affecting the Loan To Value ratio (LTV)
| Down Payment |
% Financing
(as % of mortgage amount) |
Insurance Premium |
| 0 - 4.9% |
95.1 - 100% |
3.25% |
| 5 - 9.9% |
90.1% - 95% |
2.90% |
| 10 - 14.9% |
85.1% - 90% |
2.50% |
| 15 - 19.9% |
80.1% - 85% |
2.00% |
| 20 - 24.9% |
75.1% - 80% |
1.25% |
| 25 - 34.9% |
65.0% - 75% |
0.75% (special circumstances) |
| 35% plus |
Up to 65% |
0.5% (special circumstances) |
To qualify for a CMHC insured mortgage:
- your monthly payments for "shelter costs" (mortgage principal and interest plus taxes and heating) must be no greater than 32% of your gross pre-tax family income.
- your monthly payments for all obligations - shelter costs plus loan, lease and credit card payments, plus alimony etc. - must not exceed 40% of your gross pre-tax family income.
- the payments on your mortgage must be calculated using the 3 year posted rate unless a term greater than 3 years is selected the discounted rate may be used.
Example:
If the best 3-year rate you can get is 6.5%, the monthly payment on the $182,450 mortgage shown above - at a standard 25 year amortization - is $1,222.09 (see Mortgage calculator). If your annual taxes are $2,000 and annual heating $1,200, then your annual shelter costs would total $17,865.12. Assuming no other payments, an income of $55,830 ($17,865/32%) would qualify you for this mortgage.
If you have monthly car and credit card payments of $475.00, this would add $5,700 to your annual debt servicing, for a total of $23,565. Dividing this figure by 40% (see above) gives a required qualifying income of $58,900.
What else should you know?
In general, the credit status of an applicant must meet the lending criteria of the particular mortgage lender. An Mortgage Consultant can help you meet the required criteria and assist you with the entire mortgage process.
Also, while CMHC will qualify an ex-bankrupt applicant for insurance two years after discharge with subsequent re-established credit, many lenders' own rules over-ride this feature, and they will decline the application
On the other hand there are a number of lenders who specialize in granting and administering mortgages to the full extent of the National Housing Act at competitive interest rates.
The applicant must be able to prove that their down payment comes from their own resources - savings, sale of investments, etc., the exception being a family gift that never has to be repaid, and which is in the borrower's possession before the application for Mortgage Loan Insurance is sent to CMHC.
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