Q: My friend just bought a rental property and she said she bought it with only five per cent down.

I thought that CMHC changed its guidelines earlier this year so that you need a 20-per-cent down payment minimum. How is this possible?

A: A fine distinction: Although CMHC will only finance a rental property with 20 per cent down, they will still finance a “second home” with as little as five per cent down!

However, 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 second home for yourself just down the street, so it has to make sense, too. You may also have to sign a document at the lawyer’s office stating that this is a second home.

Alternatively, it is possible to get up to 90-per-cent financing through an 80-per-cent mortgage from your bank and combining it with a 10-per-cent vendor-take-back mortgage.

In most cases, the banks will consider the payments on the “vendor-takeback” 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-per-cent financing.