CMHC has announced two changes that would  take effect on May 30, 2014

1. Cancel of the CMHC Second Home Program

Starting June 1st, 2014, investors/buyers would need a minimum of 20% down payment for their second home, they will not be able to take advantage of the 5%+ down payment that CMHC used to provide to purchase the second home for kids, parents, or yourself.  Officially after May 30, 2014 a 20% down payment will be required to purchase the cottage or  lake side condo second home and CMHC will limit the availability of homeowner mortgage loan insurance to only one property (1-4 units) per borrower/co-borrower at any given time.

What the limit means is if you currently have a property that is CMHC insured mortgage and wish to co-sign for a borrower that is planning on buying a new property and s/he requires mortgage insurance as well, you would not be allowed to co-sign as you already have a CMHC insured mortgage. Although this does not stop gifted downpayment from a potential co-signer (e.g parents), which would allow the mortgager to qualify for the mortgage on their own.

2. Cancel of Self-Employed Without 3rd Party Income Validation

Self-employed Individuals will still be able to access and quality for CMHC mortgage insurance loans when the loan is below 20% down payment, but they will need to validate and prove their past 2 year income, provided by copies of tax notice of assessment, audited or unaudited financial statements, which would still need to be approved by CMHC.

There are definitely alternatives for self-employed individuals, if they cannot provide 2 year income paper work. I would strongly advice to speak to a professional mortgage broker who will be able to help with finding subprime lenders. Contact me for some references.

If you wish to avoid CMHC product changes, you will need to have to accept offer of purchase on a specific property and your application must be submitted to CMHC for approval prior to May 30th 2014. Contact me and I will be able to help you find you the right property.

Author: Nilay Ertemur

Reference: http://www.cmhc-schl.gc.ca/en/corp/nero/nere/2014/2014-04-25-1600.cfm

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The house that you like is nearly perfect, except that perhaps it needs a little TLC; new bathroom, kitchen or basement finished.

But you only have 5% down payment and not the extra to do the renovations.

What can you do and what are your options?

Did you know that the Purchase Plus Improvement Plan lets you add the cost of upgrades to your mortgage before you move in?

It allows individuals to purchase the property and include improvements such as bathroom, roof, kitchen, hardwood floors, windows, etc, generally anything that will improve the value of the home is acceptable!

The way it works is first you must obtain written quotes from licensed contractors for the repairs and or the improvements to be done to the home before the mortgage financing and when the application for mortgage is made. The application would be  submitted to both the mortgage lender and CMHC for approval and the request is made for 95% of the purchase price PLUS 95% of the cost to complete the improvements.

Here is an example:

Purchase price: $250,000 X 95% = $237,500
The quote for the renovations: $ 15,000 X 95% = $ 14,250
Total Mortgage: $265,000 X 95% = $251,750

An important thing to note is there is no advancement until the work is completed, the funds are held back by the lawyer. The Lenders typically require work to be completed within 120 days of closing, and an appraiser is sent out to confirm the completion and usually there is a cost associated with the appraisal.

Other things to note is appliances, furnace are usually not considered as home improvements.

Nilay Ertemur

Sources:

http://www.cmhc-schl.gc.ca/en/hoficlincl/moloin/hopr/upload/CMHC_Improvement.pdf

http://www.leomaiorino.com/

http://www.theglobeandmail.com/globe-investor/personal-finance/home-cents/this-mortgage-can-make-your-reno-happen/article618795/

http://www.durhammortgagesolutions.ca/mortgage-resources-mainmenu/faqs-mainmenu-25/176-what-is-the-purchase-plus-plan

Author: Nilay Ertemur

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The cost of mortgage default insurance is about to go up for most consumers, effective May 1st, 2014  CMHC Purchase (owner occupied 1 – 4 unit) mortgage insurance premiums will increase by approximately 15%, on average, for all loan-to-value ranges.

The change does not impact existing homeowners and is expected to raise up to $175-million for CMHC.

For the average Canadian home buyer requiring CMHC insured financing, the higher premium will result in an increase of approximately $5 to their monthly mortgage payment. This is not expected to have a material impact on the housing market.

The table below shows the loan to value ratio for the 15% increase.

Loan-to-Value Ratio Standard Premium (Current) Standard Premium (Effective May 1st, 2014)
Up to and including 65% 0.50% 0.60%
Up to and including 75% 0.65% 0.75%
Up to and including 80% 1.00% 1.25%
Up to and including 85% 1.75% 1.80%
Up to and including 90% 2.00% 2.40%
Up to and including 95% 2.75% 3.15%
90.01% to 95% – Non-Traditional Down Payment 2.90% 3.35%

CMHC’s new premium rates will be effective for new mortgage loan insurance requests submitted on or after May 1, 2014. In order to be eligible for the current mortgage loan insurance premiums, lenders must submit a request for mortgage loan insurance to CMHC prior to May 1, 2014, regardless of the closing date of the home purchase. As is normal practice, complete borrower and property details must be submitted to CMHC when requesting mortgage loan insurance.

Examples:

In 2013, the average CMHC insured loan at 95% loan-to-value was $248,000.

95% Loan-to-Value
Loan Amount $150,000 $250,000 $350,000 $450,000
Current Premium $4,125 $6,875 $9,625 $12,375
New Premium $4,725 $7,875 $11,025 $14,175
Additional Premium $600 $1,000 $1,400 $1,800
Increase to Monthly Mortgage Payment $3.00 $4.98 $6.99 $8.98

Based on a 5 year term @ 3.49% and a 25 year amortization

*Premiums in Manitoba, Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount.

85% Loan-to-Value
Loan Amount $150,000 $250,000 $350,000 $450,000
Current Premium $2,625 $4,375 $6,125 $7,875
New Premium $2,700 $4,500 $6,300 $8,100
Additional Premium $75 $125 $175 $225
Increase to Monthly Mortgage Payment $0.37 $0.62 $0.87 $1.12

Based on a 5 year term @ 3.49% and a 25 year amortization

*Premiums in Manitoba, Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount.

FAQ
Q: I recently have signed for a mortgage and my closing is before May 1 2014 would this affect me?
A: No, it is only if your application was submitted is after May 1st, 2014

Q: I am planning to refinance my home on or after May 1, 2014. Will the increase in premiums and surcharges affect me?
A: If the request for mortgage loan insurance is submitted to CMHC on or after May 1, 2014, the new (higher) mortgage loan insurance premiums and surcharges will apply.

Q: I am planning to buy a home in the coming months and will require a CMHC-insured mortgage.
A: If the request for mortgage loan insurance is submitted to CMHC on or after May 1, 2014, the new (higher) mortgage loan insurance premiums and surcharges will apply.

Sources:
http://www.cmhc-schl.gc.ca/en/corp/nero/nere/2014/2014-02-28-1100.cfm?WT.cg_n=TWT_MLI

http://www.cmhc.ca/en/hoficlincl/moloin/moloin_013.cfm

Author: Nilay Ertemur

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What is CMHC?

Canadian Mortgage and Housing Corporations Mortgage loan insurance is typically required by lenders when home buyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment of 5% — with interest rates comparable to those with a 20 % down payment.

What does CMHC insurance do for me as a lender?

Well, CMHC is not life insurance, it is DEFAULT insurance, thus in the case that you default on your mortgage (stop paying your mortgage, and have your home potentially foreclosed), the loss will be covered. BUT, here’s where many people get confused, it is the lender’s loss that is covered, NOT YOURS. CMHC will likely still come after you, and the default will still go against you. Thus, you are paying to have less risk to the lender not yourself.

So whats the point of CMHC, if I am not covered?

Well think of it this way, if CMHC insurance wasn’t around, we will all be waiting until we could save up 20% down payments, to purchase our homes. Think about how long it took you, especially first time home buyers, to save that 5% down payment, 20% is simply out of reach for many people.

Although CMHC is a large cost, it saves us the time, and money we will spend along the way of renting and waiting. Thus enabling more people to get into the housing market, and helping keep the market strong with many buyers.

Just 5% down?
Yes, you can buy a home with a down payment of less than 10%:

Single-family dwelling: 5%

Two-unit dwelling: 7.5%

Minimum Equity of 5% from your own resources is required. Gifted down payments from an immediate relative are acceptable.

Once the following conditions are satisfied, you are eligible for CMHC Mortgage Loan Insurance:

  • Your principal residence is located in Canada.
  • You have a down payment of at least 5% of the purchase price of the property.
  • Your home-related expenses do not exceed 32% of your gross household income.
  • Your total monthly debt load does not exceed 40% of your gross monthly household income.

The minimum down payment for a second home purchase in Canada is 5%. CMHC allows Canadians to own up to two high ratio insured properties. To be eligible for a second home property purchase with a 5% down payment, borrowers must intend to occupy the property either themselves or have it occupied by an immediate family member. No rentals are allowed under this program.

Misconceptions on CMHC

  • CMHC insurance does not cover you when you pass away. You should still look into mortgage life insurance, or a term or permanent insurance product.
  • CMHC is not house insurance, it doesn’t protect your house or it’s contents. It’s important to still insure your home and contents against fire, theft, etc.                                                                                                  Author: Nilay Ertemur
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