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Ontario|Real Estate Law
409 Buying a home with less than a 25% down payment Most people finance the purchase of their homes with a mortgage loan. Traditionally, financial institutions would only give mortgage loans for up to 75% of the value of the home, and therefore required a 25% down payment on the purchase of a home. However, with mortgage insurance, first time home buyers can now obtain a mortgage loan for up to 95% of the value of the home with as little as a 5% down payment, for a home worth up to $250,000. A first time home buyer is someone who has not owned a home in the last five years.
If you have had a mortgage loan previously, you can get a mortgage loan for up to 90% of the value of the home. Mortgage insurance gives lenders greater protection from the risk of home buyers who become unable to repay their mortgage loan. If you are considering purchasing a home with less than a 25% down payment, your lender will require you to arrange the necessary mortgage insurance. Common mortgage insurers include Canada Mortgage and Housing Corporation and GE Capital Mortgage Insurance.
- Mortgage Insurance ApplicationTo qualify, mortgage insurers usually require that the home be used for full-time personal occupancy, and that your mortgage and tax payments do not exceed 30% of your gross monthly income. You will also be subject to a credit check, and you will have to provide proof of income. You will also need to provide an application, a fee of $75 and a suitable appraisal of your home's value prepared by your financial institution. However, if you do not provide a valid appraisal with your application, you will have to pay a higher fee of $235.
- Mortgage Insurance PremiumsThe premiums for mortgage insurance can vary. The general range is from half a per cent to three and a half per cent of the value of your mortgage loan. This premium can be added to your mortgage loan and paid off as a regular part of your mortgage payments. If you have the money, you can pay off the premium in a lump sum to avoid interest costs. There is also an 8% provincial sales tax on the insurance premiums which must be paid at the time the insurance is purchased.
Your lawyer, real estate agent or financial institution can provide you with additional information about mortgage insurance. You can also contact the mortgage insurance companies directly.