CHMC requires minimum 25% down for inv. property? Options

[tytrischuk]

Hey Guys,

Just wanted some clarity around this. Is it true that you need to have 25% down to get a mortgage from CHMC to purchase an investment property? But if its your principle residence you can get one for only 5% down?

Your answers are greatly appreciated!

[RedlineBrett]

No, you can get in with as little as 5% down on an investment property (non-owner occupied).

Fees apply and they go up quickly the higher ratio you go.

with 20% down you stay away from insurance premiums altogether...unless you go with a 30 or 35yr amortization.

Your best bet would be to talk to a good mortgage broker about your plans and let them see what they can do with your application.

[MikeMcC874]

with 20% down you stay away from insurance premiums altogether...unless you go with a 30 or 35yr amortization.

How does amortization matter? I didn't have to do CMHC at 20% and 35 years from my lender. Does this vary from lender to lender?

Mike

[RobMacdonald]

CMHC charges a flat premium based on the amount of the downpayment. If you want to increase the amortization past 25 years then the insurance premium is increased by .2% for each 5 year period. So if you want a 35 year amortization, then you would add an additional .4%.

If you put 20% down, then you can get 25, 30 or 35 year amortization without having to pay an insurance premium. Depending on the circumstances, you can actually still get 40 year amortization on conventional financing.

[mortgageman]

Hey Guys,

Just wanted some clarity around this. Is it true that you need to have 25% down to get a mortgage from CHMC to purchase an investment property? But if its your principle residence you can get one for only 5% down?

Your answers are greatly appreciated!

Yes, you can do 5 percent but the CMHC premium is huge on a rental property when there's only 5 percent down. Your cash flow will quite likely be severely impacted by the mortgage payments. Poor cash flow will make it harder for you to qualify for your next mortgage or mortgages. Play with different down payment scenarios to find a balance between down payment size and cash flow that works best for your circumstances.

[investmart]

Yes, you can do 5 percent but the CMHC premium is huge on a rental property when there's only 5 percent down. Your cash flow will quite likely be severely impacted by the mortgage payments. Poor cash flow will make it harder for you to qualify for your next mortgage or mortgages. Play with different down payment scenarios to find a balance between down payment size and cash flow that works best for your circumstances.

Comment is a bit surprising.

Example:
Investor 1 puts 20% down and buys one property generating $500 a month net income after financing

Investor 2 puts 10% down and buys TWO properties identical to the one investor 1 purchased generating $400 each ($500 minus $100/month due to principal approximately 15% higher - higher principle + mort insurance fee).

In general what you said is correct that if your principal is higher you obviously pay more BUT when looking specifically at the numbers, investor 2 is doing better!

The important thing is the examples are realistic (didn't elaborate on exact principle as I'm sure you know the $100 difference is in the range).

Regards,
Neil

This post has been edited by investmart: Jan 19 2010, 11:17 PM

[Karma]

We got a second mortgage on our principal res. last year for the downpayment in order to skip the CMHC fee which is better than accessing an LOC because as discussed in another thread it does not go against our credit score as unsecured debt which frees us up to purchase additional property. Also, you are not at the mercy of your bank to call in or raise the interest of your LOC which may be sizeable if you us it to put 20% down. Just a thought.

S.G.

[koop]

Hey Guys,

Just wanted some clarity around this. Is it true that you need to have 25% down to get a mortgage from CHMC to purchase an investment property? But if its your principle residence you can get one for only 5% down?

Your answers are greatly appreciated!

If you can put 25% down on an investment property you don't need CMHC (but that would depend on your bank), I talked to my CU and they would want 30% down (preferably 35%) to finance a revenue property without CMHC. I have never had a Mortgage there yet.

[RedlineBrett]

If you put 20% down, then you can get 25, 30 or 35 year amortization without having to pay an insurance premium. Depending on the circumstances, you can actually still get 40 year amortization on conventional financing.

Rob are you sure about that?

I thought the extended amortization fees (0.2%/every 5 years on the am past 25) applied regardless of the amount you put down. At least the last few we have done have been this way... including a couple I have done personally.

Here is the table from CMHC for reference. Says on the bottom but it's not exactly clear.

http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_005.cfm

[RobMacdonald]

Hi Brett,

If you put 20% down, then you have a conventional mortgage and don't have to insure the mortgage through CMHC. Therefore the CMHC premium surplus does not apply.

I'm curious what the circumstances were that you were paying an insurance premium on 20% down. There are still a few lenders that will allow 80% financing on rentals. If you're dealing with a company like Street Capital, they insure all applications regardless of LTV because of their securitization requirements. Merix and Vantage mortgage insure all applications through CMHC as well, but only charge the premium to the customer if the LTV is greater than 80%.

[RobMacdonald]

If you can put 25% down on an investment property you don't need CMHC (but that would depend on your bank), I talked to my CU and they would want 30% down (preferably 35%) to finance a revenue property without CMHC. I have never had a Mortgage there yet.

It all depends on the lender and they're policies. TD's 'policy' is 35% down on rentals, but they regularly make execptiosn to 25% down. That's where working with a good mortgage broker is the key.

Firstline offers 80% LTV per their policy which sounds great, but then when you apply the DCR program and work out the 1.1% rule, it's more likely that you will have to put 30 to 35% down. The subject property is qualified on a 25 year amortization. It's almost a 'slight of hand' trick. Rather than saying 'we don't want to finance rental properties at 80%' they just move the bar on the qualification so that it's almost impossible to find a property that will get to 80% LTV.

I guess that's where the risk department of the banks come in to play. There's no question that Firstline was the leader in financing rental properties for many years. With the dip in value over the last year and a half, they've had to re-evaluate their exposure to this market.

[fumbrunner]

It all depends on the lender and they're policies. TD's 'policy' is 35% down on rentals, but they regularly make execptiosn to 25% down. That's where working with a good mortgage broker is the key.

Firstline offers 80% LTV per their policy which sounds great, but then when you apply the DCR program and work out the 1.1% rule, it's more likely that you will have to put 30 to 35% down. The subject property is qualified on a 25 year amortization. It's almost a 'slight of hand' trick. Rather than saying 'we don't want to finance rental properties at 80%' they just move the bar on the qualification so that it's almost impossible to find a property that will get to 80% LTV.

I guess that's where the risk department of the banks come in to play. There's no question that Firstline was the leader in financing rental properties for many years. With the dip in value over the last year and a half, they've had to re-evaluate their exposure to this market.

What size of property are we talking about here? I have absolutely no problem financing SFD, duplexes, triplex, at 35 yr amort with 20% down and no CMHC fees. Are we talking commercial multi-unit?

[MikeMcC874]

I had no problem with my triplex with 20% down with Scotia. 35 years and no CMHC fees.

Mike

[RobMacdonald]

I was referring to residential financing above, and I agree with you. Financing is available at 20% down, up to 35 years amortization with no CMHC premium.

[mortgageman]

Comment is a bit surprising.

Example:
Investor 1 puts 20% down and buys one property generating $500 a month net income after financing

Investor 2 puts 10% down and buys TWO properties identical to the one investor 1 purchased generating $400 each ($500 minus $100/month due to principal approximately 15% higher - higher principle + mort insurance fee).

In general what you said is correct that if your principal is higher you obviously pay more BUT when looking specifically at the numbers, investor 2 is doing better!

The important thing is the examples are realistic (didn't elaborate on exact principle as I'm sure you know the $100 difference is in the range).

Regards,
Neil

Yes but we're talking 5 percent down. The CMHC fee for 95 LTV on a rental is 6.5 percent plus .2 percent for every five years the amortization is extended beyond 25 years. In other words, it's a 6.9 percent premium added to the mortgage on a 35 year amortization. Clearly this is going to make it significantly more difficult to debt service the portfolio and the subject property.