If you’re an income property investor (i.e. landlord) you might just fall in love with the new CMHC rental program.
In essence, it lets you buy an “unlimited” number of 1-2 unit rentals with $0 down…if you qualify.
The Financial Post says:
“None of CMHC’s competitors are coming close to this new [100% financing] offer.”
Canada’s #2 and #3 insurers, Genworth Financial and AIG, each require investors to put down 10%.
With nothing down, you can build your rental empire all that much faster. However, because the risk is so high, so is the mortgage default insurance fee of 7.25% (for a 25-year amortization).
Of course, if you put down more than 0% this fee drops. It might also be tax deductible.
CIBC economist Benjamin Tal expects more out-of-the-box mortgage solutions in coming months. “The genie is out of the bottle, this mortgage market is starting to move. Over the past 16 months we’ve seen more changes than the past 30 years.”
As popular as it may be, there are very few lenders offering the new CMHC rental program. Moreover, the approval standards are relatively high. Feel free to contact us or your favorite mortgage planner for details.
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Sidebar: Stephen Dupuis, CEO of the Building Industry and Land Development Association, says that CMHC’s “logic escapes” him. Dupuis is worried that programs like these will overheat Canada’s already sizzling real estate market.
It’s a valid concern but the mortgage insurance market has never been more competitive. If CMHC didn’t offer this product, one of the other 2 (soon to be 4) insurers probably would have.
I don’t understand why this isn’t on 2 – 4 unit properties and let the families that really want to buy homes keep the single units. That way investors and speculators can snap up all the duplexes, semi-detached, triplexes, and quadplexes (??) that they want. This would stop the problem of the market getting saturated with buyers for detached homes and prices skyrocketing.
Hi Traciatim,
The program currently allows for 1-2 units at 100% loan-to-value (for purchases) and 3-4 units at 90%.
Have a good night,
Melanie
Sounds like a great program. What is the CMHC premium with 10% down on a 4-plex?
I realize that the down payment required for single family homes has been reduced from 25%->20% to escape the CMHC fee. Does this rule apply to rentals also?
Hi FT, While most lenders still require 25% down on rentals, many have moved to 20%. Have a great day, Melanie
The CMHC premium with 10% down on a 4-plex is 4.75%. Here’s a link to the CMHC 1-4 Unit Rental Guide with all the premiums.
Hi Melanie, Here is another interesting point from the Vancouver Province:
The CMHC Small rental program has “changed the way financial institutions calculate the ratios used to qualify borrowers for mortgages, which makes it easier to buy rental property.
It’s a complicated formula, but rather than adding 80 per cent of the rental amount to the borrower’s income, then working out the debt ratio, a 20-per-cent shortfall is added to the expense side of the calculation. The change reduces the income needed to qualify for the mortgage.
The new product will be attractive to investors who are interested in becoming landlords and have a reasonable cash flow to handle unexpected vacancies and expenses.”
Link to article:
http://www.canada.com/theprovince/news/money/story.html?id=93343c7b-1e71-4171-a0a8-c35011f0b578&k=69503
Thank you for the information. In terms of the 80%, what if the rental income is say 130% of the mortgage payment, would this mean the applicant could get away with no other income (ie self employed without records etc)?
Hi Dan, That’s a toughie. :)
For CMHC’s Small Rental program you need to be able to prove income–even if you’re self-employed. However, if you want, call me and we can discuss some possibilities.
Cheers,
Melanie