New Rental/First Home Issue

[Ca_Silvia13]

Short version:

Bought a townhouse is 2014, roughly a year to build.
Possession is Aug/Sept of this year.

So i started inquiring with my mortgage broker as this house was originally intended to be my house. Now it will have to be a rental.

Mortgage broker said minmum 20% down for rental properties.

I simply do not have 20% to put down.


Can i take possession for 1 month as my primary residence and then rent it out in month 2? Mortgage company is non the wiser then...

Or is there something i am not aware of in this whole situation?

[nobb]

From what I understand this is a grey area sort of thing. There really isn't any way CMHC can prove that your intent was to buy it as a rental instead of a primary residence. Things change, maybe you lost your job, changed your mind on the location, dont like the smell, etc...

[ercchry]

yeah, you can do that. just dont talk about it till you have everything signed, and they keys are in your hands... but let insurance know once you turn it into a rental since there is different products for rental

[gwill]

You don't need to tell your mortgage broker that it will now be an investment property. Close on it like you'll live in it but do your due diligence with reading all the fine print on your mortgage clauses.

And like the other guy mentioned make sure your insurance company knows there are renters in there.

It sounds like your mortgage broker is a bit of a dick in not explaining what you should/could do.

[macman64]

Also keep in mind you can only have one insured mortgage. If you do this you can't buy another property with 5% you will need a full 20% down until you have re-financed the first place with at least 20% equity.

[ercchry]

Originally posted by macman64
Also keep in mind you can only have one insured mortgage. If you do this you can't buy another property with 5% you will need a full 20% down until you have re-financed the first place with at least 20% equity.

...with cmhc, unless it recently changed with the other two... havent really paid attention for a little while

[gwill]

^that's not true. I had a friend who bought a second place and now rents out his original house. They didn't have 20% equity in their original home.

[7thgenvic]

Lots of grey rules with this.

Take possession of the property at 5%. Keep sending your mail to the house. It should be your "primary residence" for 6 months. I have never known a single person to be audited for this.

[ercchry]

Originally posted by gwill
^that's not true. I had a friend who bought a second place and now rents out his original house. They didn't have 20% equity in their original home.

It is true... but its a new rule... i believe it was last summer that they changed it, and by they i mean chmc... no, chmc is NOT your only choice for insurance

[heavyfuel]

Kinda off -topic but not, does that mean that if somebody wants to buy a 2nd condo as a primary residence and rent out the 1st one they purchased 2 years prior they would need 20% down?

[ercchry]

with chmc... yes, unless they refinance the old home and have 20% equity in it

[tpurcell4]

To clarify the above, as ercchry keeps mentioning, CMHC will only allow one property. Genworth and Canada Guaranty do allow multiple insured properties. They do not advertise a limit however once you get to 3 or 4 insured properties they begin to question the intent on purchasing the homes.

[SmAcKpOo]

I sat down with my lawyer today and we went over this.

If you decide to rent out the property (meaning this is not your primary residence) you must notify the mortgage lender. Not doing this can be considered a breach of terms and can default your mortgage.

[chkolny541]

Originally posted by SmAcKpOo
I sat down with my lawyer today and we went over this.

If you decide to rent out the property (meaning this is not your primary residence) you must notify the mortgage lender. Not doing this can be considered a breach of terms and can default your mortgage.

Yea I dont know why people are calling it a grey area. Its not grey at all. Its totally black and white, the rules are there. Whether you follow them is your own choice, but if you get caught there are some serious ramifications. I have a friend who did this, 5% down for a townhouse in a city he doesn't even live in, he seems to be ok with it

[EquiumGroup]

Lots of people do this, including investors with multiple properties. Its a breach but its done daily, especially first time/second time buyers looking to secure rental properties rather than a residence.

Also, CMHC will aprove you buy 2 properties in a row so anyone who says they won't hasn't done a lot of mortgages. If you buy a condo 5% down, live there for really any period and then have a reason that the underwriter will accept, you can do it again. We personally know a few investors who've done it.

Examples:
Buy a condo, 5% down, get married need a bigger place, 5% on a house and rent out the condo. That file is sent to CMHC with those details.

Buy a condo here in Calgary 5% down, get a job in Toronto, buy a place there 5% down, rent out the first condo, again the file is sent to CMHC with their original CMHC mortgaged property showing up as rental in the scenario.

Adjusting your home insurance is important and CMHC is not going to let you do this more than a couple times. Not sure if anyone has done 3 using CMHC, GE etc to pull the same thing but it allows you capital to go way farther compared to 20% down for each.

[ercchry]

yeah, it changed last summer... cmhc will only give you ONE insured property... not to mention a broker also confirmed it, yeah... he must not do many mortgages

[jwslam]

My understanding is it's a non-issue if you're renting parts out as long as you live there too

[kenny]

Originally posted by ercchry
yeah, it changed last summer... cmhc will only give you ONE insured property... not to mention a broker also confirmed it, yeah... he must not do many mortgages

Yeah the way people used to get around it was to take advantage of the CMHC's second home program which was in place for Canadians to buy recreational properties, or properties for their kids who were going to school in other cities.

They got rid of the second home program last June.

[gwill]

Originally posted by ercchry
yeah, it changed last summer... cmhc will only give you ONE insured property... not to mention a broker also confirmed it, yeah... he must not do many mortgages

Yeah i don't think he read tim's post about CMHC only insuring 1 with 5% down but you can still do one with CMHC and another with genworth with 5% down. It is also odd if hes a mortgage broker and hes not aware of this...

In the end does it matter if its CMHC or genworth if you want 2 properties? Not really. But maybe thats a question Tim or the other brokers can answer.