How Long Does it Take for CMHC Approval
What You Need to Know About CMHC
Written By: Mariko Baerg, REALTOR of Bridgewell Real Estate Group
If you’re looking for a realtor to help you purchase a property, call me today!
Canada Mortgage and Housing Corporation (CMHC) is a mortgage insurer for mortgage loans that are considered high ratio, or have down payments of less than 20%.
We discuss the common question: How long does it take for CMHC approval?
This blog also discuss what a mortgage insurance premium is, and important details about CMHC approvals and turnaround times.
Read for details on how long it takes to get CMHC approval a mortgage in BC.
The Role of CMHC When Buying a Home
CMHC stands for Canadian Mortgage and Housing Corporation.
CMHC mortgage loan insurance is required for high-ratio mortgages, in which a buyer contributes less than 20 percent down payment towards their home purchase.
This mortgage loan insurance is in place to help protect lenders against mortgage default, and to help ensure that buyers are not being stretched too thin when purchasing a home. [i.e. in the case that interest rates increase]
Because minimum down payment rules for properties over $1,000,000 is a minimum of 20% down, mortgage insurance and CMHC is not an available option for properties that are valued over $1,000,000.
How Long Does it Take for CMHC Approval?
According to a variety of brokers that we talk to, CMHC turnaround time can vary from 2-5 business days. If you have a complex file or are purchasing a strata property with depreciation or engineering report to review, then this may take longer.
A standard subject removal is 7-10 days (including weekends), and CMHC approval is typically manageable within the standard subject removal timeframe.
If you are thinking of writing a subject free offer or have a quick subject removal, you can also ask your broker to give them a call in advance to see if there are any red flags on the property/building if strata. It will give you a better idea of whether or not the lender will be willing to give you the mortgage based on CMHC.
General Requirements to Qualify for Homeowner Mortgage Loan Insurance
As mentioned previously, you need to obtain CMHC approval for a loan when you are putting less than 20% down. Therefore, both the lender and CMHC need to approve your purchase in order for you to obtain a mortgage loan.
However, there are additional general requirements to qualify for CMHC that you should consider for yourself and the property to qualify:
- The home is located in Canada.
- The maximum purchase price is below $1,000,000.
- You meet the minimum down payment requirements. For a purchase price of $500,000 or less, the minimum down payment is 5%. When the purchase price is above $500,000, the minimum down payment is 5% for the first $500,000 and 10% for the remaining portion. For more details on minimum down payments in BC, click here: Minimum Down Payment Rules BC
- The minimum down payment is typically preferred to come from your own resources; however, a gift down payment from an immediate relative is acceptable when purchasing a dwelling of 1 to 4 units. Additional government or lender incentives may also be permitted, but it is best to check with your mortgage broker for qualifying criteria and availability.
- Your total monthly housing costs, including Principal, Interest, property Taxes, Heating (P.I.T.H.), the annual site lease in the case of leasehold tenure and 50% of applicable condominium fees, shouldn’t represent more than 32% of your gross household income (Gross Debt Service (GDS) ratio).
- Your total debt load shouldn’t be more than 40% of your gross household income. The Total Debt Service (TDS) ratio is your P.I.T.H. + the annual site lease in the case of leasehold tenure and 50% of condominium fees (if applicable) + payments on all other debt / gross annual household income.
- Proof of funds to cover closing costs. Closing costs include but are not limited to lawyer fees, GST applicable, property transfer tax (unless exempt), and various adjustments for maintenance fees or property taxes.
How much is the mortgage insurance premium?
When you obtain mortgage loan insurance via CMHC, the lenders are then charged and insurance premium which is then passed down to you as a buyer.
This premium has had recent changes and works on a sliding scale, but the basis is that your premium payable is based on a percentage of the home’s purchase price that is financed by a mortgage. Therefore if you put 5% down vs. 15% down, your premium will vary.
This premium can be paid in a single lump sum amount, or it can be added to your monthly mortgage payment. If added to your monthly mortgage payment then you will also be paying interest on the premium.
The Importance of Being Prepared: Mortgage Preapprovals
The CMHC approval process is typically absorbed as a part of the subject to financing on the contract of purchase and sale. There are essentially two parts to the financing approval:
- The lender approving your income/affordability
- The lender approving the property you are purchasing
The most common reason for delays in getting approved is missing or in complete information when it comes to your financial status. To ensure that your application is processed as quickly and easily as possible, it is important to get a mortgage pre-approval done BEFORE you start looking for a home. This will allow the mortgage professional to provide you with a list of all that needs to be handed in to complete the pre-approval, so that the lender & CMHC can solely focus on approval the building or property and already have your affordability approval mostly out of the way.
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If you’re looking to purchase a home and are looking for guidance on how to make the process easy & stress-free, then call us today at 604-765-0376. Prefer text? 604-319-0200. or email [email protected] to start a conversation. We’re here to help.
