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Is it possible to buy a rental property with only 5% down?

Q: My friend just bought a rental property and she said she bought it with only 5% down. I thought that CMHC changed their guidelines earlier this year so that you need 20% down minimum. How is this possible?

A: Although CMHC will only finance a rental property with 20% down, they will still finance a “2nd home” with as little as 5% down. In order to qualify under these guidelines, no rental income can be used to help qualify and it is unlikely CMHC will believe that you are buying a 2nd home for yourself just down the street, so it has to make sense. You may also have to sign a document at the lawyer’s office stating that this is a 2nd home.

Alternatively, it is possible to get up to 90% financing through an 80% mortgage through your bank or broker combined with a 10% vendor-take back mortgage. In most cases the banks will consider the payments on the vendor take back into your debt servicing, which will usually be calculated at current market rates and amortized (not interest only). CMHC is not involved so there are no CMHC premiums applicable when you structure it this way, either. Be prepared to face a little more scrutiny on the rest of the application (income, credit and the property) if you are hoping to get 90% financing.

About the Author

Kyle Green has been working with Mortgage Alliance Meridian Mortgage Services as a mortgage broker specializing in investment real estate for the past 4 years. Because of the volume of his franchise which has been ranked #6, #5 and most recently #4 in 2009 in CMP magazine in volume he has top status level with all of the lenders and can guarantee the best rates on the market.

Kyle works closely with Ozzie Jurock’s REAG membership to specialize in financing for investors by creating a plan that has built many successful real estate portfolio’s. He has spoken in front of groups of investors as small as 10 people to over 700 people, including Ozzie’s semi-annual Outlook Land Rush conferences which he has spoken at for the past 3 years. It is important to work with a mortgage broker who specializes in portfolio financing; just as you wouldn’t use a residential broker for a commercial purchase, you should use a specialist for your residential investments.

If you have any questions about real estate investment financing, he can be reached at 778-373-5441 or kgreen@mortgagealliance.com

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