Clients ask mortgage broker's that question all the time. If you have never purchased a home before, chances are that you have never heard of them. CMHC is the Canada Mortgage and Housing Corporation. Basically, they are an organization set up by the federal Government to help put Canadians into homes. This is done through a combination of grant programs and mortgage loan insurance programs. Not very glamorous, but without it the majority of Canadians would never have been able to buy their first home.
Let me Explain it a bit more.
The banks are cautious lending money to people. When you buy a home, they are often at risk for hundreds of thousands of dollars of money loaned out. It is their preference to minimize their risk and as such they prefer you put at least 20% of the purchase price as the down payment on a home. This is called a conventional mortgage (one with 20% or more equity).
In order to make home ownership more accessible to Canadians, mortgage insurance was created. CMHC offers mortgage insurance.
If you have less than 20% down payment, the bank may offer to lend you a mortgage still but require that you buy insurance on the loan. This insurance protects the bank and guarantees that if you cannot make the payments, CMHC will reimburse the bank for the full loan amount. Basically it eliminates all risk for the bank, which is why the big banks love it.
So while the insurance is expensive, it is virtually the only way to purchase a home with less than 20% down.
Calgary Mortgage Broker