New Rules for Borrowing Down Payments

Don’t fuss about CMHC’s (Canada Mortgage and Housing Corporation) new rules for borrowing money for down payments. 

Although CMHC banned borrowing money for down payments in 2020, plenty of lenders and other mortgage insurers still allow it. 

Quick Read

Can you borrow money for a down payment?

Can you borrow from family?

Can you get a loan for a down payment?

What are insured mortgages?

Minimum credit scores for mortgages

9 tips for meeting CMHC’s new rules

How can I borrow money for my mortgage down payment?

No More CMHC Borrowed Down Payments 

Except for non-repayable gifts from immediate family, Canada’s federal housing agency (CMHC) no longer permits borrowing money for down payments. Qualify for a CMHC mortgage

You can still get your foot in the door by borrowing money for down payments.

It just might cost you more than you hoped. 

Qualify for a CMHC mortgage

Borrowing From Family or Lenders

On the upside, you can still get a mortgage with borrowed money, just not from CMHC (see that non-repayable gift provision) and with more restrictions. Sagen™ still accepts borrowed money for high ratio mortgages, but has pulled the plug on repayable loans from immediate family members. 

The list of family you can’t accept loans from at Sagen™ includes: 

  • Parents or grandparents
  • Brothers or sisters
  • Legal guardians
  • Children or legal dependents

Borrowed money must come from gifts from non-immediate family members, personal loans, credit lines, or credit cards. You can have a guarantor, or put a co-borrower on the property title, even if they don’t live with you. Insurance premiums are higher with borrowed money (4.5% to 6.6%). Borrowing money for down payments incurs higher default insurance premiums (4.5% to 6.6%), but it may be a small price to pay to have a home of your own. When to consider an assumable mortgage

How High Ratio Insured Mortgages Work

Mortgage life insurance protects a lender if you default on your payments. . Homebuyers with less than 20% down can get high ratio insured mortgages from CMHC, Sagen™ (formerly Genworth  Canada), or Canada Guaranty.  You pay for the privilege. For example, CMHC tacks on a one-time insurance premium of:

  • 4% of mortgage amounts with under 10% down
  • 3.10% with 10%-14.99% down
  • 2.8% for 15%-19.99% down
  • or 2.4% for 20% down.

A $500,000 mortgage with 5% down costs $20,000 plus PST. You pay PST and the premium at closing time or add the premium to your mortgage principal. (Tip: Keep interest costs down by making a $20,000 lump sum payment on your mortgage. The quicker you pay the premium, the less interest it costs.) Get CMHC Eco-Plus refunds for green housing. 

Watch Your Credit Score, Debts

CMHC requires buyers with the least amount of cash to have a minimum credit score of 600. Gross debts (GDS) cannot exceed 39% of annual income. Total debts (TDS) must be no more than 44%. That reverses temporary changes made in 2020 because of COVID. Fix your credit score to get a mortgage. Help for first time homebuyers in Ontario.

9 Tips for Meeting Mortgage Loan Insurance Requirements

Improve your chances of getting a high ratio mortgage.

    1. Calculate if you can realistically make mortgage payments after other debts.
    2. Check your total household costs — mortgage, property taxes, strata fees and heat — meet debt servicing ratios (at least 39% and 44%).  
    3. Can you afford both the loan for a borrowed down payment and the mortgage?
    4. Use a traditional lender like a bank or credit union if your credit score is great.
    5. Go to a mortgage broker if you need help.
    6. Bring three months of pay stubs and your last tax assessment.
    7. For temp work or casual hours, show at least two years of income.
    8. Look for a home worth four times or less than your taxable income (line 26000 on your tax form).
    9. Unless you have 15% down, keep purchases under $500,000.

Get a private mortgage

Get Money for the Down Payment on a House (Canada)

Don’t overlook unlocking the power of your RRSP if you’re considering borrowing money for down payments. Under the federal Home Buyer’s Plan, couples can use up to $70,000 to buy a first home and singles up to $35,000, without interest penalties. Buy or build a home for yourself or a family member with a disability. As long as you repay the RRSP within 15 years, no interest penalty is charged. Hold your mortgage in your RRSP

Best tip yet, courtesy of the Royal Bank: put your savings in a RRSP at year end, then withdraw your down payment 90 days later. Use the tax refund for legal fees. What is the Canada Home Buyer’s Plan

Why You Need a Real Estate Lawyer 

Finalize legal documents to refinance mortgages or close a sale if you are borrowing money for down payments. Axess Law offers flat rate legal fees for mortgage refinances or real estate transactions. Red flags to watch for when buying condos

Axess Law liaises between you and your lender to get your new mortgage signed and witnessed. We go over mortgage terms and conditions to ensure you understand what you are agreeing to, then file your mortgage at a local land registry. Using a real estate lawyer for a mortgage refinance

Your Axess Law real estate lawyer searches title to property for legal claims or liens that may delay registration. If someone has placed a financial encumbrance on your title, we advise you what to do next. Whether you’re moving up or borrowing money for down payments to buy your very first home, dealing with Axess Law is quick and convenient.

Affordable Real Estate Lawyers, Anywhere You Are 

Access lawyers for less in the Greater Toronto Area, Ottawa, or by remote video conference. Our flat fee rates are affordable, and all inclusive (excluding taxes, disbursements, and third-party charges). Your final invoice includes no surprises, or hidden charges. Your itemized statement of adjustments is explained when we deliver it, and we answer any questions you have about it. You can get independent legal advice, or add a family member to a property for a modest title transfer lawyer fee. Axess Law offers you only the legal services you absolutely need. 

Hire virtual real estate lawyers in Ontario. 

Book Online or By Phone Today 

Make an appointment today by dialing toll free to 1-877-402-4207  (647-479-0118 in Toronto) or using our easy online booking form. You can video conference with an Axess Law real estate lawyer anywhere you are 7 days a week. If you prefer, meet us at any of our conveniently located Greater Toronto Area or Ottawa law offices

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Click here to learn more about our real estate law services.