In the world of mortgage lending BIGGER is not always BETTER.
Mortgage default insurance (CMHC / Genworth / CG) is no longer available on properties valued over one million dollars. This means the minimum down payment for any home valued over 1 million is 20%, however more often than not a buyer will require additional funds.
All lenders employ “Sliding Scales” for maximum loan to value ratios on these properties. The sliding scale determines the maximum loan to value ratio or minimum down payment required on a home. This is done to offset the perceived risk of marketability at this higher price point should the bank need to foreclose on the property at any point. Sliding scales vary from lender to lender, some lenders are more conservative with their down payment requirements and some more aggressive. When purchasing a home at a price point greater than 1 million dollars, a knowledgeable mortgage advisor and multiple lender options will prove invaluable.
One Example of a Lender Sliding Scale Based on a 1.5 Million Dollar Home Purchase:
80% of the first $1,000,000 and 50% thereafter
$1,000,000 X 80% = $800,000 Mortgage
$500,000 X 50% = $250,000 Mortgage
1,050,000 Maximum Mortgage Amount
Based on this lenders ‘Sliding Scale’, the buyer requires a minimum 30% down payment or $450,000 to complete this purchase
It is important to note that exceptions to these sliding scales are made on a case-by-case basis. We can see loans issued for the full 80% of the purchase price in this price range on exception. The lender will take into account various factors, including the property type and location as well as the overall strength of the applicant. Question? Call Anytime.