While most home buyers know about CMHC mortgage insurance, many condo buyers and owners are not aware that CMHC plays a larger role in condominium than in single-family housing. The facts go beyond simply qualifying for a mortgage with less than 25% down payment on the purchase price. Let's review the basics, then get into the further condominium role that CMHC plays.
CMHC stands for Canada Mortgage and Housing Corporation, a federal Crown corporation mandated to assist Canadians to become homeowners. It does that, in part, by protecting lenders with insurance on mortgages, so that if a borrower fails to repay, CMHC will repay the debt, should the sale of the property yield less net proceeds than the debt. If a home buyer has 25% of the purchase price in cash, lenders do not require CMHC insurance (a "conventional mortgage"). If the buyer has less than 25% down, lenders require the home buyer to purchase CMHC mortgage insurance with a sliding-scale fee paid by the buyer ("high-ratio mortgage"). Lenders will then loan up to 95% of the purchase price.
In short, this system costs home buyers money, but it makes possible home ownership with buyers only needing to save up 5% of the purchase price, if they otherwise qualify to buy that home. For those buying a single-family home, that's pretty much the end of the story. Condominium buyers, however, need to know that CMHC will not insure mortgages in some condo communities. And in a few cases where the agency will insure mortgages today, it may not in future. Therein lie some important implications for condominium buyers and current owners.
Any major threat to the value of condo homes within a given development could cause CMHC staff to remove eligibility for the corporation's mortgage insurance. If you are buying a condo with at least 25% down, an issue of concern to CMHC might not even come to your attention, although a condo-specialist Realtor will certainly ensure that it does. And if you're aware of the issue, it may not loom large for you. But if CMHC is shy of a condominium community, shouldn't you be? If nothing else, keep in mind that if/when you sell, most Canadians shop for their homes with less than 25% down, so CMHC insurability is very important to the market value of your investment, even if you yourself didn't need it.
Issues to watch for include anything that can cost a lot of money, or the simple fact that a condominium corporation has no reserve fund study and no reserve fund money in the bank to pay capital expenses when they arise. CMHC does not want to become the owner of a condo home that is suddenly liable for a $5,000 special assessment for structural repairs, or for re-building the brick exterior of a large condo apartment building. I dare say that you and I should share such concerns. If you already own a condo, you want to ensure that the reserve fund is growing, and that maintenance issues are addressed as they arise. These efforts will preserve your home, but will also ensure that you can easily sell at a good market price to buyers who will need a CMHC-insured mortgage; even if you didn't.
The number of condo developments in Alberta that do not qualify for CMHC mortgage insurance appears to be on the decline. Public awareness is growing by leaps and bounds. The new Condominium Property Act is setting a higher standard, which most condominium boards are striving to reach. All in all, condo corporations in Calgary, Edmonton and smaller centres are well run, properly funded through their condo fees, and are building reserves to cover those future major expenses.
Still, 'better safe than sorry. If you're shopping condominium, ask, or let your condo-specialist Realtor protect you by avoiding all non-CMHC-insurable condo developments. And if you're already an owner, lead or support your Board to spend appropriately to maintain a healthy reserve fund and a high standard of building maintenance
Calgary Condominium Directory
