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| funding your down payment - part 2 |
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[1] [2]
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CMHC Mortgage Loans
If the downpayment on a property purchase is less than 25%, then the loan is considered high risk and must be insured.
Such insurance coverage is provided by the Canada Mortgage and Housing Corporation. Typically, CMHC mortgages amount to 90% - 95% of the value of the property.
The insurance premium can reach up to 2.5% of the loan amount.
There are additional costs involved as well i.e. application charge and appraisal fee.
Before the loan can be granted, GDS (Gross Debt Service) and TDS (Total Debt Service) coefficients must be calculated to establish the applicant's credit worthiness.
Legally, with CMHC loans only houses within the following price limits can be purchased:
- Toronto and Vancouver up to $250,000
- Northern regions up to $175,000
- Rest of Canada up to $125,000
To sum up, you qualify for the CMHC loan if:
- You have not owned a principal residence in the past five years
- You can make a 5% downpayment on the purchase of a house whose price is within limits set out for a specific region of Canada
- Your monthly expenses (GDS) amount to less than 32% of your gross household income
- You have a total debt ratio (TDS) of 40% or less of your gross household income
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