It’s a common misconception that only a first-time home buyers may purchase a home with minimum down payment, which is any purchase where there is less than 20% down payment. It is a requirement that all such loans need to be insured by one of Canada’s three mortgage insurers. As long as the home is being owner occupied or you are buying a secondary home, you may put the minimum down payment which can be as low as 5% down payment, as long as the mortgage can be insured.
Another misconception we hear often is that once you purchase a home with minimum down payment, that all future homes must have a minimum 20% down payment. Now insurers do look at each purchase case by case. However, there are many instances where people have taken insured mortgages more than once if their lifetime.
If you initially purchased a home with minimum down payment and a few months later wanted to purchase a new house with minimum down payment and turn the existing home to rental, this would most likely be flagged as someone trying to build a rental pool and bypassing the required minimum 20% down payment for rental properties (obviously!). But what if you were to do the same scenario after a year or two of living in your first home. Well, this is actually a different situation. This is a scenario that is commonly allowed. You still need to qualify for the new purchase which would be your new ‘owner occupied’ home, while keeping the existing property that would be converted to a rental property. As long as you meet these new qualification requirements, this is a situation that is commonly done.
There are other examples. Couples that have slit up through divorce can sometimes qualify to put a lower down payment on a new property and they start their new lives independently. Or maybe you are a parent that wants to help your child purchase their first home. Or maybe you want to purchase a 2nd home for your child (owned by you solely) to live in while going to school, or a vacation property. All of these situations are possible scenarios where one could potentially purchase a 2nd property with minimum down payment requirements.
Currently, insured mortgage can only be offered on properties that are valued less than $1,000,000 in value. This is a number to keep in mind. And as always, in all of the above possibilities, all applicants need to pass government, insurer and lender qualification requirements, including the stress test .
If you are looking to make such an investment, please reach out to your mortgage professional to discuss possible programs/options that may be applicable to you.