Whether you’re new to Canada, a permanent resident or a foreign investor, you’ve probably heard of mortgage insurance.

The biggest misconception about mortgage insurance is that it benefits the borrower. When in reality, it is used to protect the lender against the risk of the borrower defaulting on their mortgage. Many people ask about what the minimum downpayment they can make is, but the real question is what is the minimum amount you can put down without needing insurance.

Mortgage Insurance acts as a premium to your monthly payments as protection for the lender. The baseline rule in Canadian conventional mortgages is that you need a minimum downpayment of 20% to avoid taking on the additional cost of mortgage insurance. If you put less than 20% down, it is considered a high-ratio mortgage, not a conventional mortgage, and will require insurance. However, in some scenarios, mortgage insurance is required regardless of how much you put down. 

It is important to distinguish between Mortgage Insurance and other mortgage-related insurance products that are designed to protect the borrower. Common products include:

• Homeowner/Property Insurance: A form of property insurance designed to protect the individual’s home (or possessions in the home) against damages, including loss, theft, fire, or other unforeseen disasters.

• Mortgage Life Insurance: A type of insurance designed specifically to repay any outstanding mortgage debt in the event of homeowner death or long-term disability.

Ultimately, mortgage insurance can be a financially strategic move to help any newly arrived homebuyers be able to afford and own their home sooner. Mortgage insurance offers multiple benefits, such as, but limited to:

• The ability to purchase a home without having to save for a 20 percent down payment.
• A comprehensive product suite designed to meet your unique financial and homeownership needs.
• Greater flexibility through affordable premiums and lower down payment options.
• The ability to port or transfer your mortgage insurance from one home to another, anywhere in Canada.
  
  

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Below we will explore how mortgage default insurance applies to New to Canada future homeowners. We will go over in detail some basic requirements and regulations imposed by all three main mortgage insurance companies: CMHC, Sagen, and Canada Guaranty. In addition, we will dive further into each individually.

Eligible borrowers

Individuals who are Canadian citizens, permanent residents of Canada, or non-permanent residents who are legally authorized to work in Canada.

Creditworthiness

At least one borrower (or guarantor) must have a minimum credit score of 600. CMHC may consider alternative methods of establishing creditworthiness for borrowers without a credit history. 

Down payments

The down payment can come from sources such as savings, the sale of a property, or a non-repayable financial gift from a direct relative, meaning either your parents, grandparents or siblings. You can no longer borrow money for your down payment, which means that your down payment can only come from your own money or from a non-repayable gift.

Debt service

The maximum threshold is a gross debt service (GDS) ratio of 39% and a total debt service (TDS) ratio of 44%. The GDS and TDS ratios must be calculated using an interest rate that is greater than the contract interest rate plus 2 percent, or if the contact rate is below 3.25%, then just the 5.25% qualifying rate will apply.

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CMHC Mortgage Insurance for New To Canada Homebuyers

Click here to view CMHC’s current premium rates.

If you are new to Canada and are interested in buying your first home, CMHC has a guide, available in English, French, Mandarin, Tagalog, Urdu, Punjabi, Spanish and Arabic, that covers the important things you need to consider. Get information about financing, types of Canadian homes available, how to determine affordability, where and how to look, what to look for, how to make an offer to purchase, where to find assistance and support, and more.

Minimum equity requirements

For homeowner loans, the minimum equity requirement for 1 – 2 units is 5% of the first $500,000 of lending value and 10% of the remainder of the lending value. For 3 – 4 units, the minimum equity requirement is 10%.

Small rental loans: The minimum equity requirement is 20%.

Loan-to-value (LTV) ratios

Loan-to-value (LTV) is the ratio between your mortgage amount and the value of your home. If you have a mortgage amount of $325,000 and your home is valued at $500,000, then your LTV is 65%. Lenders depend heavily on your LTV ratio to determine your borrowing abilities.

Homeowner loans (owner-occupied properties): The loan-to-value ratio for 1 – 2 units is up to 95% LTV. For 3 – 4 units, the ratio is up to 90% LTV.

Small rental loans (non-owner occupied): The loan-to-value ratio for 2 – 4 units is up to 80% LTV.

Purchase price/lending value, amortization and location

For both homeowner and small rental loans, the maximum purchase price/lending value or as-improved property value must be below $1,000,000.

For homeowner loans, CMHC-insured financing is available for one property per borrower/co-borrower at any given time.

The maximum amortization period is 25 years.

The property must be located in Canada and must be suitable and available for full-time, year-round occupancy. The property must also have year-round access (via a vehicular bridge or ferry if it is on an island).

Rental income

Whether the property is owner-occupied or non-owner-occupied, subject to an MLI application or not, we offer different approaches to rental income for qualification purposes.

Click here to Find out more about the approach(es) that can be used to calculate rental income and the inputs to consider when calculating the debt service ratios.

CMHC’S Eligibility Requirements. SOurce: CMHC

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Sagen Mortgage Insurance

Sagen’s New to Canada program values helping newly arrived immigrants purchase their first homes with as little as 5% down, subject to eligibility. They offer a few different mortgage products for those who are newly arrived. Programs such as:

Eligible Products

• Homebuyer 95 Program
• Progress Advance Program
• Purchase Plus Improvements Program

The main eligibility requirements for Sagen’s New To Canada Programs are:

• Borrowers must have a minimum of 3 months of full-time employment in Canada (those transferred under a corporate relocation program are exempt)

• Borrowers must have a valid work permit or permanent residency

• For properties > $500,000 and <$1,000,000 – a 5% down payment is required up to $500,000, with an additional 10% down payment on the portion of the home value above $500,000 (but below $1M).

Eligible Properties:

• Property Value must be below $1M.
• Maximum 2 units, where 1 unit must be owner-occupied
• New construction is covered by a Lender approved New Home Warranty Program*
• Existing resale properties
• Readily marketable residential dwellings, located in markets with demonstrated ongoing re -sale demand
• The estimated remaining economic life of the property should be a minimum of 25 years.

Sagen New to Canada Borrower Qualifications

Click here to view Sagen’s current premium rates.

Income and Employment

• Standard income and employment verification requirements apply.
• 3 months minimum full-time employment in Canada (borrowers being transferred under a corporate relocation program are exempt).

Credit

• 90.01-95%LTV
• International credit report (Equifax or TransUnion) demonstrating a strong credit profile.

OR

• Two (2) alternative sources of credit demonstrating timely payments (no arrears) for the past 12 months. The two alternative sources required are:
  • Rental payment
  • One other alternative source (hydro / utilities, telephone, cable, cell phone and auto insurance).
  • Up to 90% LTV
  • Letter of reference from a recognized financial institution OR six (6) months of bank statements from a primary account.

Down Payment

• Qualified home buyers may use traditional down payment sources including personal savings, a non-repayable gift from an immediate family member(s), proceeds from the sale of property; subject to the loan to value outlined below:
  • 95% LTV, 5% of the down payment must be from own resources.
  • < 95% LTV, the remainder may be gifted from an immediate family member or from a corporate subsidy.

Additional Criteria

• Must have immigrated or relocated to Canada within the last 60 months.
• Must have a valid work permit or obtained permanent residency.
• All debts held outside of the country must be included in the total debt servicing ratio (Rental income earned outside of Canada is to be excluded from the GDS / TDS calculation).
• Guarantors are not permitted.
• Foreign Diplomats or any other foreign politically appointed individuals who do not pay income tax in Canada are ineligible for this program.

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Canada Guaranty Programs

The last of the big three mortgage insurance companies is Canada Guaranty. Overall, it can be difficult to save a downpayment of 20%. This is how Mortgage Insurance offers affordability when searching for and ultimately purchasing a home.

• Click here to view Canada Guaranty’s current premiums.

Here’s an overview of some of the main products offered by Canada Guaranty:

Maple Leaf Advantage Program

Canada Guaranty’s Maple Leaf Advantage provides new immigrants, who have limited documented credit history, the opportunity to purchase a home with as little as 5% down.

Transaction Types

• Purchase transactions.
• Purchase Advantage Plus™ eligible.
• Progress Draw Advantage™ eligible.
• Portable eligible.
  

Amortization

• Maximum 25 years.

LTV Criteria & Credit Requirements

• 95% for Purchase:
  • Purchase Price ≤ $500,000: Minimum 5% down payment required.
  • Purchase Price > $500,000 and < $1,000,000: Minimum 5% down payment required on the first $500,000 of the purchase price, plus an additional 10% down payment required on the portion of the purchase price above $500,000.]

• Credit requirements are based on the loan-to-value ratio of the borrower.

• 90.01%-95%:
  • OPTION 1: International credit bureau.OR
  • OPTION 2: 12 months rental payment history, confirmed via letter from the borrower’s landlord and supported by 12 months of bank statements confirming rental payments; AND
  • At least one utility payment confirmed via letter from the service provider or 12 months of bill statements confirming regular payments.

• 90% or Less:
  • 6 months verifiable bank statements from a recognized Canadian financial institution or from a financial institution of the country of origin.OR
  • A letter of reference from the borrower’s financial institution of the country of origin confirming a minimum of 6 months satisfactory banking relationship.*All forms of alternative credit confirmation used to qualify must have been established in Canada.

NOTE: Maximum LTV is subject to adjustments based on local housing market conditions.

Interest Rate Types

• Fixed, standard variable, capped variable and adjustable-rate mortgages permitted.
• Borrower(s) must qualify at an interest rate that is greater of the contract mortgage rate plus 2%, or 5.25%.
  

Property Types

• The maximum property value must be less than $1,000,000.
• Maximum 2 units, with 1 unit owner-occupied.
• Resale or new construction.
  

Borrower Qualifications

• Must have immigrated to Canada within the last 5 years.
• Minimum 5% down payment from borrower’s own resources. The remainder may be gifted from an immediate family member or from a corporate subsidy. No borrowed down payments are permitted.
• Borrower required to have permanent resident status/landed immigrant status or a valid work permit.
• Minimum 3 months of full-time employment in Canada (professional employee relocation exempt from this requirement).
• No mortgage delinquencies, previous bankruptcies or foreclosures.
• All debts held outside of Canada must be included in qualification ratios.
• Foreign rental income may not be used in qualification ratios.
• Maximum debt service ratios: GDS 39% / TDS 44%

Flex 95 Advantage Program

The Flex 95 Advantage program offers a flexible down payment option for borrowers with a strong credit history. The borrower may access 5% equity from sources not covered in our Down Payment Advantage™ program.

Transaction Types

• Purchase transactions.
• Purchase Advantage Plus™ eligible.
• Portable eligible.
  

Amortization

• Maximum 25 years.
  

Credit Score Requirements

• Strong credit profile required.
  

Loan-to-Value Criteria

• 95% for Purchase: 1-2 units
  • Purchase Price ≤ $500,000: Minimum 5% down payment required.
  • Purchase Price > $500,000 and < $1,000,000: Minimum 5% down payment required on the first $500,000 of the purchase price, plus an additional 10% down payment required on the portion of the purchase price above $500,000.]

NOTE: Maximum LTV is subject to adjustments based on local housing market conditions.

Interest Rate Types

• Fixed, standard variable, capped variable and adjustable-rate mortgages permitted.
• Borrower(s) must qualify at an interest rate that is greater than the contract mortgage rate plus 2%, or 5.25%.
  

Property Types

• The maximum property value must be less than $1,000,000.
• Maximum 2 units, with 1 unit owner-occupied.
• Resale or new construction (single advance).
  

Eligible Sources of Equity

• Equity that is borrowed from any source that is arm’s length from the purchase or sale transaction. This may include personal loans, lines of credit, or lender credit. Loan payments must be included in the TDS calculation.
• Gifts or grants from any party that is arm’s length from the transaction.
  

Ineligible Sources of Equity

• Sources that are not arm’s length to the transaction, either directly or indirectly, are ineligible. Ineligible sources include, but are not limited to: builder incentives or loans, Realtor®/mortgage broker incentives, or loans to the borrower that impact the property selling price.
  

Borrower Qualifications

• When the down payment is borrowed, payments must be included in the TDS.
• No third-party or non-occupying guarantors.
• Standard underwriting guidelines apply.
• Maximum debt service ratios: GDS 39% / TDS 44%
  

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We hope this article helped you better understand how mortgage default insurance can help you and your family secure your home sooner. Each and every insurer and their respective products can be tailored to each individual person. Contact us today to see what the best solution for you and your current situation is.

The Mortgage Professionals promise to offer simplified mortgages and professional results. Find out how we can help you today by emailing us at darcy@themortgageprofessionals.ca, or by giving us a call at 604-889-7343.