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.