Getting creative with financing

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One industry professional shared his insight into attaining financing for a type of property that many traditional lenders are shying away from.

“There are plenty of private funds available in the market. Recently the topic of micro unit financing came up during Professional Real Estate Investors Group (PREIG) Canada meeting. Professional real estate investors have found all type of different resources to finance their deals,” Navtaj Chandhoke wrote on MortgageBrokerNews.ca. “If the major lenders do not want to do a deal, private lenders are happy to invest.”
The comment was in response to an article about attaining mortgage default insurance for micro condos.

The three major mortgage default insurers – CMHC, Genworth and Canada Guaranty – have their own criteria for assessing risk, but at least two of them view micro condos in the same light.

“We don’t discriminate when it comes to micro condos; we treat them as a regular condo unit,” Kate Munroe, media relations officer with CMHC told MortgageBrokerNews.ca. “As long as they are self-contained, meaning they have a kitchen and a bathroom. We also take at least 50 per cent of condo fees into consideration.”

Similarly, a representative for Genworth told MortgageBrokerNews.ca that the private insurer does not use special criteria for evaluating micro condos, and that they are treated the same as any other condo unit.

“As with any condo property, Genworth Canada adopts prudent underwriting criteria that takes into account, among other factors, the overall marketability of the property, the condo’s financial position and the credit profile and strength of the borrower,” Lisa Azzuolo, director of communications for Genworth said.

But what about Canada Guaranty? It remains unclear, as calls to the company were not returned. One broker, however, shared some insight he had gleaned in communication with the insurer.

“It depends what we mean when we talk about micro. I got an email from Canada Guaranty that said the minimum they would go is 500 (square feet),” Matt McKillen of Mortgage Architects told MortgageBrokerNew.ca.
Still, even if the mortgage insurers are willing to provide default insurance isn’t a guarantee that financing can be attained for these units.

“Even if the insurers are willing to insure the mortgage for micro units it still comes down to lender overlays – whether the lender is willing to entertain doing them and if they are going to meet their portfolio guidelines,” McKillen said.

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