Is it possible to buy 3rd, 4th+ primary residences with 5% down?

28 Replies

Ok so i purchased my first SFH 2 years ago as my primary residence, put 5% down. Lived in it for 8 months and it's been a rental since. I purchased my 2nd SFH last year as a secondary primary residence, put 5% down and rented it out since day 1. I went through the pre approval process with my mortgage broker and she pre approved me to buy another property with 5% down. She told me because my current properties are rentals i can buy a primary residence again as long as i live in it (yeah right lol). My first house does have 20% equity because of appreciation. Is my broker wrong or are we allowed to keep buying primary residences for 5% down and turn them into rentals? I live in Alberta.

Thanks!

@Andrew DeB  Don't know the rules up in Canada, but what you did with the 2nd house and trying to do with the 3rd is mortgage fraud and that's a Federal Crime in the US.

Count your blessings and be happy with the 2 that you got away with.

Upen Patel, Mortgage Banker
Federal NMLS# 1374243

What i'm trying to ask is at what point does a primary residence become a rental and if it's possible to get more than 2 properties with 5% down. I didn't fraud anything, they are duplexes and there's a paper that i signed with a lawyer. It says on it "this property is being purchased as a primary residence and not a rental". I told my lawyer i intend to rent out part of the properties so she crossed out that line and forwarded it to the banks and whoever else and they all signed and approved everything. I haven't done anything illegal.

Originally posted by @Andrew DeB :

What i'm trying to ask is at what point does a primary residence become a rental and if it's possible to get more than 2 properties with 5% down. I didn't fraud anything, they are duplexes and there's a paper that i signed with a lawyer. It says on it "this property is being purchased as a primary residence and not a rental". I told my lawyer i intend to rent out part of the properties so she crossed out that line and forwarded it to the banks and whoever else and they all signed and approved everything. I haven't done anything illegal.

 Depends on perception what is wrong and right, but I would have to agree with Upen since you said you bought the 2nd home as a "primary residence," with intent on living in the property (so you mentioned to the bank) and then mentioned you went back on your intent and rented it out since day 1 there by defrauding the lender to obtain primary residence terms while the real intent was to acquire the property as a rental property/investment.

As for the other question you mentioned can you keep buying primary residences with 5% down (in US only) you can as long as the scenario makes sense and the loan amount is 417k or lower (10% down is required for loan amounts in excess of 417k loan in certain areas of the US, dont know about canada).

Good luck to the loan officer who works on this scenario, because he or she would be putting their professional license at risk for collusion with the borrower.

@Andrew DeB

In Canada, a 5% down payment is available through a CMHC insured high-ratio mortgage on single family and duplex properties.  Originally, this was intended for first-time home-buyers, but somewhere along the way things relaxed and a 5% down payment is available on the purchase of your primary residence (which, by definition, is owner occupied).  

Purchasing a property under this programme and not living in it (i.e. renting it out from the time of purchase) might just put you on the wrong side of mortgage fraud.

Another thing you should consider is CHMC has started to tighten down on the 5% down payment a little.  As of June 01, 2015, the insurance premium that is tacked onto the principal of your mortgage (meaning you pay interest on the insurance amount) has increased by ~15% bringing it in the ball park of 4% of the purchase price (on a 250,000 $ house, that would amount to an additional $10K of mortgage principal.

The realtor, the broker, the lawyer all knew it was a rental and didn't say a thing about mortgage fraud so i'm not worried about discussing it. My question that i made this thread for still remains, is it possible to buy more than 2 properties with 5% down.

It's mortgage fraudulent Canada as well.  No matter how you look at it, Sorry.  When it comes time for renewal the bank will quickly learn that the homes are not your primary residence. Also the lawyer has to sign off on the fact that the property is your primary residence.  When a lawyer receives the direction instructions form the lender he/she is no longer representing but the lender.  

I would rethink who your mortgage broker is as they could cost you lots of money. CMHC is auditing a lot more after closing.  Which leads to fines and a call of the mortgage. 

Well Andrew, since you're not worried about mtg fraud, I suggest you just buy 3 or 4 at the same time, using owner occupied financing for all of them.  Let us know how that works out for you.  And your defense will be "but I told everybody I was lying on the application, they didn't stop me, so it's okay!".

@Andrew DeB

From the CMHC website:

What are the General Requirements to Qualify for Homeowner Mortgage Loan Insurance?
  • The home is located in Canada.
  • For CMHC-insured mortgage loans, the maximum purchase price or as-improved property value must be below $1,000,000.
  • You will typically have a down payment of at least 5% of the purchase price of the dwelling, depending on the dwelling type.
    • Single-family and two-unit dwellings (5% minimum down payment)
    • Three- or four-unit dwellings (10% minimum down payment)
  • Normally, the minimum down payment comes from your own resources. However, a gift of a down payment from an immediate relative is acceptable for dwellings of 1 to 4 units. For eligible borrowers, additional sources of down payment, such as lender incentives and borrowed funds, are also permitted. Check with your lender 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). Use the GDS form to calculate how much you can afford in housing costs to be eligible.
  • 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. Add up your costs and determine your Total Debt Service ratio using the TDS form.
  • You also need to think about closing costs (for example, legal and land transfer fees) equivalent to 1.5% to 4% of the purchase price. Many first-time buyers are surprised by these costs. That is why, when qualifying for CMHC’s Mortgage Loan Insurance, our Home Purchase Cost Estimate worksheet form will help you calculate your total homebuying costs.

    Closing costs include but are not limited to one-time items such as lawyer fees, GST and PST as applicable, land transfer tax if applicable, adjustments, etc., to allow you to complete the house purchase.
  • Other requirements may apply and are subject to change. For details, please contact your lender or mortgage broker.

There is a little more detail in this brochure on using CMHC insurance for a home purchase.

Gary is correct, purchasing a property as a owner occupant (homeowner) using the 5% down payment and then not satisfying the occupancy requirements, is fraud.    

I also found the following condition listed in the CMHC brochure referenced above:

"At initiation, the property that secures a CMHC-insured mortgage loan must be intended for occupancy at some point during the year by a borrower; or a relative of the borrower on a rentfree basis. Lenders must confirm owner occupancy and maintain the confirmation on file."
"Approved Lenders are to verify, prior to submitting an application to CMHC, that the borrower(s) does not have existing CMHC-insured homeowner financing."

Which seems to confirm the CMHC high-ratio mortgages are intended for owner occupants (homeowners) and your are not suppose to be able to have more than one high-ratio mortgage in existence at a time.

Potential fraud issues aside, purchasing properties with 5% down payment, you will quickly find your GDS and TDS go offside; not to mention the world of turmoil awaiting you when interest rates rise.  Finally, there is the fact you will be taking on an additional 10 - 20K in debt on each property to cover the CMHC insurance premium and them paying interest on that incremental debt - an additional $4K - $8K at today's prime rate of 2.7% (assuming your mortgage runs the full 25yr amortization and interest rates do not rise).  So, in the end, you will pay an additional $14K - $28K to use a 5% down payment.

It is fraud. You sign an application for more favorable terms on O/O vs Investment properties. If you don't live in them or intend to live in them, it is fraud. You can argue the semantics all you wish. It is occupancy fraud. It is your loan, and your mortgage application and your responsibility to represent your intent. You may take the others with you, but your not clear of any wrong doing. I don't know about Canada, but the US, that is one of the number one cases of mortgage fraud and rather easy to discover. Not worth the risk.

  It can be legal to buy an owner occupied-investment property as long as your tenant is a family member, those terms are discussed with your financier. It seems your broker has watched the Wolf of Wall Street too many times.

 I highly recommend to never buy another property with 5% down in your portfolio. You are only loaning your own equity to yourself while paying high interest, which will lead your real estate business to collapse in the future.

 As your currently living in your own home, my 2 cents would be to save up enough capital to place 20% down on something small and leverage (REAL EQUITY) Stay away from CMHC. 

As i said before, whats done is done i didn't make this thread to debate about mortgage fraud or whether its worth while to pay CMHC. Besides there is no detailed time restrictions as to how long you have to live in it before you can rent it out. You can't tell me because i put 5% down i have to live in it till its paid off. My question still remains, Is it possible to buy a 3rd property with 5% down?

Andrew DeB
To answer your question, yes, you probably could buy a third property with 5% down but just be ready to pay the price if you get caught with your fraud. But, yes, you can do it.

Originally posted by @Andrew DeB :

As i said before, whats done is done i didn't make this thread to debate about mortgage fraud or whether its worth while to pay CMHC. Besides there is no detailed time restrictions as to how long you have to live in it before you can rent it out. You can't tell me because i put 5% down i have to live in it till its paid off. My question still remains, Is it possible to buy a 3rd property with 5% down?

Q: "because i put 5% down i have to live in it till its paid off" 

A: No. See below but in my opinion CMHC is clear: only 1 insured mortgage for principle residences per borrower. Your options (IMO) are:

- Sell the residence, and obtain a new insured property - you still fall within the guidelines of only 1 insured mortgage.

- Buy the new residence and obtain a conventional (not insured) mortgage - you still fall within the guidelines of only 1 insured mortgage.

- Buy the new residence and obtain an insured mortgage under rental property guidelines (20% down) - you have more than 1 insured mortgage, but you used the correct CMHC program for investors, not principal residence purchasers.

- Do what you're suggesting; find a lender willing to overlook the guidelines, and hope CMHC ignores the guidelines. Try your luck, and meet the consequences if they arise. I'm with other posters - this is a pretty silly move, but that's my opinion.

Your original question was "Is it possible to buy 3rd, 4th+ primary residences with 5% down" per the thread title.

The answer some folks have given is that if you do this, it could be interpreted as mortgage fraud under the current rules/guidelines from CMHC about what they're willing to insure. That's a pretty clear cut answer IMO.

I'm not entirely clear about what you're asking for other than this as if you want a very definitive answer, you'll need to either (or both):

1. Ask a lender.

2. Ask CMHC.

3. Ask a lawyer well versed with CMHC guidelines for a legal opinion if it's somehow a grey area with them (which, IMO, it is not).

A few minutes on google turns up information that supports the other posters who have suggested what you're trying to do could be a grey area, at absolute best, and in a worst case scenario, someone might interpret as fraudulent.

Per CMHC effective May 30 2014:

http://www.cmhc.ca/en/hoficlincl/moloin/moloin_014...

"Going forward, CMHC will limit the availability of homeowner mortgage loan insurance to only one property (1 – 4 units) per borrower/co-borrower at any given time."

Per TD Bank:

http://www.td.com/to-our-customers/tdhelps/#psce%7...

"...If you choose to make your current home a rental property and purchase another home as a primary residence, you'll have to put at least 20% of the purchase price as a down payment. This is a new lending Canadian Financing rule as Mortgage Default Insurance will no longer be offered on second homes..."

This then leads to the question of:

Can you find a lender who feels differently about it? Maybe. But, ultimately since you want to use 5%, CMHC underwriters have to approve it. 

If you've already done it - either CMHC has a different interpretation of the rules and you should just get them to confirm the answer for you directly (because you shouldn't be afraid of this being remotely fraudulent), or, it's a bit grey/shady and they just missed it when they were doing underwriting.

The problem arises in that if it's something they just missed, they might eventually catch it - I'd imagine the minimum penalty would be forcing you to refi at 20% down for any excess properties that were post cut off date for insuring under the old rules. However, it could be far worse than that - the age old advice of "ask a lawyer" applies.

No legal advice inferred, given, etc.

Also you note "My first house does have 20% equity because of appreciation."

- Doesn't matter (again my opinion). Your mortgage was issued with insurance (and you're probably either paying premiums now or paid them up front).

Just refi into a conventional loan now that you have 20% equity and the limitation doesn't apply based on this home anymore.

Note that the CMHC rules about second homes came in to effect in 2014; so, when you did this before, you might just have been operating under old rules.

Anyway - my suggestion applies: you seem to think what you're doing is totally fine, so why not just pick up the phone, and ask CMHC directly?

Originally posted by @Adam C. :

  It can be legal to buy an owner occupied-investment property as long as your tenant is a family member, those terms are discussed with your financier. It seems your broker has watched the Wolf of Wall Street too many times.

 Your are eligible to obtain a CMHC insured, high-ratio mortgage when you purchase a home in which an immediate family member is to reside rent free.

Originally posted by @Andrew DeB :

My question still remains, Is it possible to buy a 3rd property with 5% down?

 Not while you still hold a CMHC insured high-ratio mortgage.

@Shez B.

If the OP refinances the home after he has reached >20% equity, then he could discharge the high-ration mortgage and place a standard mortgage in its place.

Updated almost 3 years ago

Opps ... that last line should read "...then he could discharge the high-ratio mortgage ...."

Originally posted by @Roy N. :
Originally posted by @Andrew DeB:

My question still remains, Is it possible to buy a 3rd property with 5% down?

 Not while you still hold a CMHC insured high-ratio mortgage.

@Shez B.

If the OP refinances the home after he has reached >20% equity, then he could discharge the high-ration mortgage and place a standard mortgage in its place.

 Totally makes sense.

First post! Yay. From Alberta, Canada and everyone on here is correct if you've obtained CHMC mortgage insurance fraudulently like you have I'd quickly refi that property to 80% LTV and rid yourself of the negative downside.

In Canada you are allowed to hold CMHC Insurance on a maximum of 2 properties.  So you can purchase home #1 at 5% down which HAS to be owner occupied (or immediate family rent free) and remain in this home for 1 year as they will send out a letter confirming occupancy after a year.  After that you can rent that home out and purchase a second home with 5% down and insurance through CMHC and are required to live in that home for another year.  

After that you must put 20% down with traditional financing unless you can Refi one of the previous houses to 80% LTV and then purchase another CMHC insured home at 5% down.

In Canada CMHC is not the only insurance provider as well, you may choose to go with Genworth mortgage insurance as an example.

I'd suggest refi your one property to 80% LTV then purchase home #3 with 5% down if that is what you'd like to do.

Good Luck!

@Taylor Brown

The CMHC residential home owner programme allows for an LTV as high as 95% (5% down payment) on SFH and duplexes and 90% on triplexes and quadraplexes.

While a CMHC insured mortgage is portable, CMHC homeowner mortgage loan insurance is available on a maximum of one property (1 – 4 units) per borrower/co-borrower at any given time. {Not 2 as you indicated above}.

There is a different CHMC insurance programme for multifamily buildings (note: *real* multifamily, not 1-4 unit residential) which allow for as little as 15% down payment (with potentially another 10% vendor carry).  Qualification is tougher than for the residential insurance.


I reviewed the changed policy and you are correct, I purchased 2 homes with CMHC insurance however it was before the change came into effect which now no longer allows this...

CMHC is Changing Its Mortgage Insurance Product Offerings Effective May 30, 2014

As part of the review of its mortgage loan insurance business, CMHC is discontinuing its Second Home and Self-Employed Without 3rd Party Income Validation mortgage insurance products effective May 30, 2014. Self-employed Canadians can still qualify for CMHC insured financing through CMHC homeowner products with a validation of their income using traditional methods.

CMHC Second Home and Self-Employed Without 3rd Party Income Validation will remain available for new mortgage loan insurance requests submitted to CMHC before May 30, 2014, regardless of the closing date of the home purchase. As is normal practice, complete borrower and property details must be submitted by a lender to CMHC when requesting mortgage loan insurance.

For the majority of self-employed borrowers, income validation is readily available. To validate their income, self-employed borrowers can provide copies of their Notice of Assessment, audited financial statements or unaudited financial statements prepared by an independent third party, for the previous two year period.

Going forward, CMHC will limit the availability of homeowner mortgage loan insurance to only one property (1 – 4 units) per borrower/co-borrower at any given time.

@Taylor Brown

It would appear CMHC has simply returned to their prior policy practice.   It has been so long since I sought a high-ratio mortgage {hint: mortgage rates were double digits}, I did not realize the criteria had been relaxed for a period of time.

Yes you can get another primary rate if you live in a new home.  Yes it is mortgage fraud if you sign that you will occupy and never do (not to mention unethical).  There is no timeframe if it is not stated (some programs require 1 year, etc.)

Originally posted by @Pete T. :

Yes you can get another primary rate if you live in a new home.  Yes it is mortgage fraud if you sign that you will occupy and never do (not to mention unethical).  There is no timeframe if it is not stated (some programs require 1 year, etc.)

 Pete:

The OP is in Canada.  Here you are only permitted to have one CMHC insured mortgage at a time.

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