Buying with 5% down payment

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Don't have the usual 25% down payment?

No worries - Increase your leverage with a high ratio mortgage! This consumer-oriented program 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 GE Capital Mortgage Insurance Co, a private sector insurer, and the other by CMHC, a Federal Crown Corporation. Read carefully; the small print could create unexpected hitches! Use an RMA Mortgage Consultant to guide you through the process.

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).

Down Payment    =

% Financing
(as % of mortgage amount)

Insurance Premium
(calc. from mortgage amount)

5 - 9.9%

90.1% - 95%

3.25%

10 - 14.9%

85.1% - 90%

2.00%

15 - 19.9%

80.1% - 85%

1.75%

20 - 24.9%

75.1% - 80%

1.00%

25 - 34.9%

65.0% - 75%

0.65% (special circumstances)

35% plus

Up to 65%

0.5% (special circumstances)

For example, if a mortgage of $178,000 was subject to a 2.0% Insurance fee because it was between 85-89% of the purchase price. The fee would be $3,560, and the total mortgage amount $181,560. To qualify for a CMHC insured mortgage:
  1. 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.
  2. 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.
  3. the payments on your mortgage must be calculated using the 3 year rate (5 year rate for the 5% down program).
Example:
  1. If the best 3-year rate you can get is 6.5%, the monthly payment on a mortgage of $182,450 - at a standard 25 year amortization - is $1,222.09 (see Mortgage Analyzer 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.
  2. 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 RMA Mortgage Consultant can help you meet the required criteria and assist you with the entire mortgage process. Plus we deal with many lenders and therefore have a greater chance of matching you with a 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.

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.

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... three major centres - Toronto, Vancouver and Victoria qualify for $300,000... 22 other centres plus all North-Eastern Ontario centres have a $175,000 ceiling, and the rest of Canada's ceiling is pegged at $125,000. These are constantly under review, however.
  • 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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