When buying a home, most people believe financing is as simple as just getting a mortgage. However, there many considerations you may want to take into account when financing real estate. Are you considering vendor financing or would you prefer to get a mortgage? Would you prefer to finance your home through a bank or a broker? And if you are looking to get a mortgage, would it be a CMHC-insured mortgage, based on your down payment savings?
What is CMHC Financing?
The Canada Mortgage and Housing Corporation (CMHC) is a government-owned corporation that provides mortgage insurance to Canadian banks and lenders. This insurance protects lenders in the event that a borrower defaults on their mortgage, allowing them to offer more flexible mortgage options to homebuyers.
What are the Pros of CMHC Financing?
One of the biggest pros of CMHC financing is that it allows for more lenient mortgage requirements. For example, borrowers with less than a 20% down payment can still qualify for a mortgage with the help of CMHC insurance. This can be especially beneficial for first-time homebuyers who may not have a large down payment saved up. Instead, only a 5% minimum is required to obtain a CMHC-insured mortgage, which can be far more affordable for many, especially in the current real estate market.
Another pro of CMHC financing is that it can help to make homeownership more affordable in general. Because CMHC insurance allows for lower down payments and potentially lower interest rates, borrowers may be able to afford a larger or more expensive home than they would be able to without CMHC financing.
What are the Cons of CMHC Financing?
While it may sound like perfect solution, there are also some potential cons to CMHC financing. One is that it can add to the overall cost of a mortgage. Borrowers who take out a CMHC-insured mortgage will have to pay a premium for the insurance, which can add to their monthly mortgage payments.
Additionally, CMHC financing may not be available for certain types of properties. For example, CMHC insurance is not available for properties that are in need of significant repairs or for properties that are considered to be “non-traditional”. This can include mobile homes or properties with multiple units, removing it as a possibility for those considering investing in multi-family real estate.
Overall, the decision of whether or not to finance a property with a CMHC-insured mortgage will depend on an individual’s unique circumstances and financial situation. While it can provide some benefits, it’s important to carefully weigh the pros and cons before deciding if it’s the right option for you.