I’ll be honest, when we purchased our first home, I knew nothing...absolutely nothing...My husband and I were very naïve.
Did you know that the bank has great marketing skills?
We casually walked into the bank to get a line of credit for a vehicle and were casually asked if we would like to see if we could be pre-approved for a mortgage to which we had no idea what they were asking so we said "sure." When we discovered that we were pre-approved for a $250,000 mortgage, that planted the seed in our heads that we probably "needed" to buy a home. It seemed like a huge amount of money for a home in 2005 but little did we know that the Calgary Housing Boom was just around the corner...
Now, remember just because you start out with minimal knowledge, doesn’t mean that you can’t learn. Babies also start their lives with minimal information.
We went from my husband and I being uninformed, to learning and growing and being able to pay off our mortgage in 10 years! We have officially been Mortgage-free since January 2020 and it’s such a freeing feeling! I love it!
To learn more about how we did that, check out this blogpost:
So I want to share with you all the things that I have learned and all the new rules that apply to new homeowners.
This is going to be a 3 part series:
Part 1: What is CMHC and how does it apply to new homebuyers and what are the additional expenses associated with purchasing a home.
Part 3: What Options for Affordable Homebuying are available if you are short on cash.
Before you start looking at some potential houses to buy, or before you even step into a bank... Ask yourself?
Do you have a 20% down payment?
If not, then you need Mortgage Loan Insurance.
What is Mortgage Insurance?
(https://www.cmhc-schl.gc.ca/)
There are actually 3 different Mortgage Insurance Companies:
Canada Guaranty
Genworth Financial and
Canadian Mortgage Housing Corporation
CMHC is the largest one. The other two companies are private companies and have their own sets of rules and regulations. If you have less than 20% for a down payment, you are viewed as a riskier client to the bank, hence the need for mortgage insurance.
What is the CMHC?
"The Canadian Mortgage Housing Corporation is a Crown corporation governed by a Board and responsible to Parliament through a Minister."
(https://www.cmhc-schl.gc.ca/en/about-us/management-and-governance)
Why?
“CMHC exists for a single reason: to make housing affordable for everyone in Canada. We know that housing helps people stay employed, do better in school and participate more fully in society. Housing affordability and a stable housing finance system support a stronger, safer Canada where everyone can live with dignity.”
CHMC is typically the term used for mortgage default insurance.
In reality, you won't know which of the 3 companies your bank has partnered with unless you ask specifically.
What are the qualifications for CMHC approval?
(https://www.cmhc-schl.gc.ca/en/consumers/home-buying/mortgage-loan-insurance-for-consumers/what-are-the-general-requirements-to-qualify-for-homeowner-mortgage-loan-insurance)
Next, the Mortgage Insurance is based on how much you have for a down payment between 5-20%:
(https://www.cmhc-schl.gc.ca/en/consumers/home-buying/mortgage-loan-insurance-for-consumers/what-are-the-general-requirements-to-qualify-for-homeowner-mortgage-loan-insurance)
You will typically need a minimum down payment of at least 5%.
(https://www.cmhc-schl.gc.ca/en/consumers/home-buying/mortgage-loan-insurance-for-consumers/what-are-the-general-requirements-to-qualify-for-homeowner-mortgage-loan-insurance)
The minimum down payment should from your own resources but there are a few exceptions:
(https://www.cmhc-schl.gc.ca/en/consumers/home-buying/mortgage-loan-insurance-for-consumers/what-are-the-general-requirements-to-qualify-for-homeowner-mortgage-loan-insurance)
What if I have debt? Do I Still Qualify for Mortgage Loan Insurance/CMHC?
You could calculate your Gross Debt Service Ratio/Total Debt Service Ratio to determine your eligibility.
CMHC also has a Home Purchase Cost Estimate Form worksheet which will help you calculate your total homebuying costs.
(https://www.cmhc-schl.gc.ca/en/consumers/home-buying/mortgage-loan-insurance-for-consumers/what-are-the-general-requirements-to-qualify-for-homeowner-mortgage-loan-insurance)
(https://www.cmhc-schl.gc.ca/en/consumers/home-buying/mortgage-loan-insurance-for-consumers/what-are-the-general-requirements-to-qualify-for-homeowner-mortgage-loan-insurance)
*Please note that other requirements may apply and are subject to change. These are just guidelines and you will have to check with your specific lender for their rules and regulations as well.
How Are CMHC Insurance Payments Made?
CMC fees are added to and included in your Mortgage payments.
What if I want to move?
Check with your lender to find out the exact terms and conditions of mortgage portability for a particular mortgage package.
Now remember, this is just the first step towards considering your readiness to purchase a home. It's a big decision and it can be a heavy burden of extra cost if you are not prepared and it can be a blessing if you are well prepared or ready to learn in advance.
Now Go and Be Intentional Canadian First Time Homebuyers!