The Canadian housing finance system renders it possible for you to purchase a property in Canada even if you are unable to save enough for the money down. Better yet, it allows buyers to purchase a loan with a 5% down payment, but will be able to get an interest rate as if you made a 20% down payment.
What makes this possible? This is granted by purchasing loan insurance for the amount borrowed on the loan. While you are able to get a residence without paying the entire down payment, the broker is able to reduce the risk of a default loan.
Who Qualifies?
However, not everyone will be able to get mortgage insurance; there are some requirements to qualify.
The home needs to be in Canada to meet the first requirement. For single-family and two-unit residences, you must have a down payment with a minimum of 5%, and at least 10% on three- or four-unit residences. The down payment needs to come from your own resources, but it is acceptable for an immediate relative to donation you the money.
Also, the total monthly housing expenses that include principle, interest, property taxes, heat, the annual site lease in case of household tenure, and 50% of applicable condominium fees shouldn’t represent greater than 32% of your gross household earnings.
An additional qualifier for mortgage insurance is your debt load should not be greater than 40% of your gross household income.
The amount of closing costs and fees also can play a roll in deciding your eligibility for loan insurance.
Just how much does it cost?
To obtain mortgage insurance, the lender pays an insurance premium. Yes, the lender is the one who pays the premium, but believe me; they will pass the expense on to you.
Does loan insurance cost a lot? There are various answers to that question. The amount of the mortgage is directly connected with the price of the insurance. The more youre lended, the more insurance will be. So, for those who saved more will be rewarded more.
You can even pay the insurance premium in diverse ways. The premium can be paid in a lump sum or can be added into your loan expenses and be paid monthly.
Purchasing mortgage insurance does not mean you are safe if you fail to pay on a loan. Insurance for the borrowed mortgage reduces risk for the broker. On the plus side, it enables you to buy a property you were not otherwise able to buy.
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