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Buying
with as little as 5% down
Don't have the usual 25% down payment? Two programs are available that let you buy a home for as little as a 5%
down payment. One is administered by GE
Capital Mortgage Insurance Co, a private sector insurer, and the
other by CMHC,
a Federal Crown Corporation. Read you application for a mortgage carefully; the small print could
create unexpected hitches! Furthermore, have a long talk with
several people you trust. Is this a wise financial decision?
What happens if your property value goes down and your home is worth less
than the mortgage?
Who is eligible?
Any qualified borrower who meets the following lending criteria:
- A first time buyer who wishes to purchase a home whose value is
above the "ceiling" established in that area for the First
Home Loan Insurance Program.
OR
- A non-first time home buyer who has 10% or 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 GE 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).
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| Down
Payment = |
%
Financing
(as % of mortgage amount) |
Insurance
Premium
(calc. from mortgage amount) |
| 5
- 9.9% |
90.1%
- 95% |
3.75% |
| 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) |
![]() |
In the example given above, the mortgage of $178,000 would be subject to
a 2.5% Insurance fee because it is 89% of the purchase price. The fee
would be $4,450, and the total mortgage amount $182,450. 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
rate (5 year rate for the 5% down program).
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. 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. 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.
In addition to the slight differences described above in mortgage terms
and qualifying ratios (Total
Debt Service ratio cannot exceed 40%) there are a few important
conditions which apply to eligibility under this program:
- The price of the home must be within the eligibility ceiling for
the area - check with your lender for the ceiling level as it keeps
changing.
- 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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