Buying your first home in Canada? Then you’ve likely heard about the CMHC (Canada Mortgage and Housing Corporation).
Here’s what first-time home buyers need to know.
What Is CMHC?
CMHC is a government agency whose purpose is to help stabilize Canada’s housing market. Their main objective is to make housing more affordable for more Canadians.
For first time home buyers, its most well-known role is providing mortgage loan insurance. They also provide research and data to help inform housing sector decisions and outcomes.
Why Does CMHC Matter to You?
If the down payment you have available to purchase your first home is less than 20% of the home’s purchase price (e.g. less than $100,000 for a $500,000 home), you are required by Canadian law to get mortgage default insurance.
Mortgage default insurance protects the lender if you can’t make your payments. This law is intended to help make the Canadian housing market more stable, predictable and reliable.
For some of those who come up short of this 20% level, the CMHC is a resource to provide federal funding into Canadian housing programs that help aid buyers in need.
Obtaining a mortgage and mortgage insurance is the most important step of the home buying process for most Canadians, even before obtaining home insurance.
How Does CMHC Insurance Work?
It’s paid by you, the first time home buyer.
The amount owed is usually added to your mortgage so you don’t pay it upfront.
CMHC insurance premiums typically range from 2.8% to 4.0% of the mortgage amount, depending on your down payment and other factors.
CMHC Requirements
To qualify for a CMHC-insured mortgage:
The property purchase price must be less than $1,000,000.
The first time home buyer must meet certain debt service ratio limits.
The mortgage amortization must be 25 years or less.
The buyer needs a minimum 5% down payment on the first $500,000, and 10% on the portion above that.
CMHC and First-Time Buyer Incentives
CMHC also partners in programs that help first-time buyers, such as:
First-Time Home Buyer Incentive:
A shared equity program that can reduce your monthly payments.
Home Buyers’ Plan:
While not a CMHC program, CMHC resources support this RRSP withdrawal option.
Speaking of first time home buyers – Helping First Time Home Buyers Understand Home Insurance.
Erie Mutual Insurance proudly serves the commercial insurance, farm insurance, home insurance and auto insurance needs of members throughout Southern Ontario including Haldimand, Niagara and Hamilton.
Please don’t hesitate to contact us with any questions you may have about this or any other topic related to your insurance.
