Canadian Mortgage and Housing Corporation
Canadian Mortgage and Housing Corporation (CMHC) high ratio insures mortgage financing in Canada. Without CMHC, banks would require homebuyers to make a 25% down payment. If you qualify for high ratio insurance through Canadian Mortgage and Housing Corporation you can purchase a home with as little as 5% down.
Canadian Mortgage and Housing Corporation has its own lending guidelines meaning that if you want to purchase a home with a 5% down payment CMHC will have to approve your credit application in addition to approval from the bank. If your high ratio insurance is declined by CMHC the bank will not extend the mortgage financing to you without a substantial down payment.
CMHC lending guidelines are set by the Federal Government. In Canada, the Federal Government has tightened CMHC lending guidelines over the past few years, reducing maximum mortgage amortizations from 35 years, down to 30 years, down to 25 years. CMHC also high ratio insures homeowners who want to refinance their homes. In this regard CMHC used to insure refinance mortgages up to 95%, but recent changes by the government have reduced this amount to 80%.
To qualify for CMHC insurance you must:
- Have a minimum credit score of 650
- Have a minimum of 2 years of good credit
- If you have had problems with credit in the past, 2 years must have passed since you cleared up problem credit and you must have 2 years of re-established credit
- Be able to prove your income – if employed, through a paystub and job letter; if self-employed, through 2 years of tax assessments
- Be able to demonstrate that the new mortgage payment, including property taxes, condo fees if applicable and heating, will not exceed 32% of your gross income
- Be able to demonstrate that the new mortgage payment, including property taxes, condo fees if applicable and heating plus payments to loans and credit cards, will not exceed 42%
- Be able to demonstrate stability
- Be able to prove where your down payment is coming from through 3 months of bank statements showing the funds in your account. If someone is giving you the down payment, immediate relatives may “gift” a down payment to a family member. In this case that relative will have to swear a declaration that he or she gifted you the down payment and that you are not required to repay those funds
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