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Can You Get FHA Loans in Canada? Here Are the Alternatives


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Getting a mortgage in Canada can be tough, especially if you have a poor credit score or can’t afford a large deposit.

But there are options available that can make it easier to get on the housing ladder.

In the USA, FHA loans provide people with assistance. FHA loans are not available in Canada, but there is a similar option from the CHMC.

In this guide, we’ll look at the FHA loan alternatives in Canada, like CHMC-backed mortgages, to help you decide the best option.

Key Takeaways

  • FHA loans provide assistance for people in the USA buying a property.
  • The Canadian equivalent is the CMHC, which provides mortgage default insurance.
  • This helps people access a mortgage even if they cannot provide a 20% down payment, making homeownership more accessible.

What is an FHA Loan?

An FHA loan is a type of mortgage issued in the USA insured by the Federal Housing Administration (FHA).

It involves more flexible lending requirements than standard mortgages, lower down payments, and less strict credit score requirements, making these loans easier to get approved for.

It is a useful option for first-time buyers or borrowers with low credit scores.

When you take out an FHA mortgage, you must pay an annual insurance premium for FHA mortgage insurance. In the case of defaulting on your mortgage, the insurance protects the lender.

This is an upfront premium you must pay right away, and you must then pay an annual premium in monthly payments.

What is the FHA?

The Federal Housing Administration (FHA) is a United States federal government agency. Its primary role is to insure mortgages to make it easier for people to access a mortgage and get on the housing ladder.

By insuring mortgages, approved lenders can offer loans to people with poor credit who might not qualify for a standard mortgage.

Can You Get an FHA Loan in Canada?

When it comes to an FHA loan in Canada, eligibility is not an issue because the FHA is only available in the United States. So, if you’re looking for an FHA loan in Canada, lenders won’t be able to help you.

That being said, a similar option is available in the form of mortgage default insurance.

This can be used by people who want to purchase a home but do not have a large down payment and have a lower credit score.

FHA Loan Alternatives in Canada

There are several options available to help people buy homes in Canada. The main alternative to the FHA loan in the USA is the CMHC-backed mortgage.

This is mortgage default insurance offered by the CMHC, Sagen, and Canada Guaranty. However, because CMHC is the main provider, they are often called CMH-backed home loans or mortgages.


In Canada, you will need mortgage default insurance if you want to apply for a mortgage without paying a 20% down payment.

If the value of your home is under $500,000, you must make a minimum down payment of 5% to apply for a mortgage.

If it is between $500,000 and $999,999, you must pay 5% for the first $500,000 and 10% for the rest.

For homes valued at $1 million or over, you must always pay a 20% down payment. In this case, you cannot apply for a CMHC-backed loan.

This provides insurance to the lender if you default on your mortgage, enabling you to buy a property with a lower down payment of as little as 5%.

The lender will pay the premium, which depends on the size of your down payment and the property price.

The lender passes on the cost of insurance to the buyer. You can pay it in one go or add the premium to your mortgage and pay it with your normal mortgage payments.

You can use this to qualify for a CMHC-backed mortgage. So, you’re getting a mortgage from a third party, but it is backed by CMHC insurance, like the FHA does in the United States.

A CMHC-backed mortgage means you can buy a property with a lower down payment, making it easier to obtain a mortgage.

CMHC Loan Requirements

Getting loan insurance is a requirement if you want to apply for a mortgage with a down payment of less than 20%. However, you must still qualify for it.

To qualify for a CMHC-backed loan, you must have a credit score of 600 or more. 

You must also have a gross debt service (GDS) ratio of 39% or lower and a total debt service (TDS) ratio of 44% or lower. These provide information on how much of your monthly income goes toward housing and other debts.

You must also buy a property in Canada that costs less than $1 million, and the maximum amortization period for the mortgage is 25 years.

The down payment must come from your savings and investments or be a gift from a family member. It cannot be money that you have borrowed.

How to Apply for a CMHC Loan

You don’t have to apply for a CMHC loan. Instead, your lender will sort out the insurance for you when you take out a mortgage as long as you qualify based on the requirements outlined above.

The lender will pass on the cost to you, and you can pay for it as a lump sum or in addition to your mortgage payments.

Advantages of a CMHC Loan

  • Makes home ownership more accessible for people without enough for a 20% down payment.
  • You could buy a home sooner without waiting to save up a larger down payment, which could take years.
  • Get a mortgage even if you have a lower credit score.
  • Take advantage of lower rates on your mortgage because it is guaranteed.
  • Pay off your mortgage insurance over time along with your mortgage.

Downsides of a CMHC Loan

  • If you pay a lower down payment, you will take out a higher mortgage, which can be more expensive.
  • You must still provide a minimum down payment to take advantage of it.

Sagen Mortgage Loan

While this type of insurance is often called CMHC insurance, it is available from two other providers, one of which is Sagen.

This is a private company, and the rules are similar if you want a Sagen mortgage loan.

Canada Guaranty Mortgage Loan

Canada Guaranty also provides mortgage default insurance like the CMHC and Sagen. This is another private company with very similar requirements.

First-Time Home Buyer Incentive

The First-Time Home Buyer Incentive is a bit different, but it may be a good option if you’re struggling to buy a property.

You must be able to provide the minimum down payment, which will be equal to between 5% and 10%, and then you can apply for an interest-free loan from the government.

The government will then own this portion of your property because it is a shared equity instrument.

You can use this to make a larger down payment, reducing the size of your mortgage and making it more affordable.

While the loan is interest-free, you will need to pay it back. You can do this at any time, but always when you sell your property or after a maximum of 25 years have passed.

The amount you pay back is based on the value of your property. If the government owns 10% of your property, you must pay back 10% of the property’s value or the loan amount plus an 8% annual gain, whichever is lower.

If your home depreciates in value, you pay back the proportional value of the loan or the amount you borrowed with an 8% annual loss, whichever is highest.

How to Choose the Best Mortgage Option for You

There is a lot to consider when you take out a mortgage. If you are buying your first home and you are struggling to put down a large down payment, consider the CMHC-backed mortgage in Canada.

You can’t get an FHA loan, but this is a similar option for Canadians. Or look at the other options available, like the First-Time Home Buyer Incentive.

Work out the overall costs, use a mortgage calculator, shop around for mortgage rates, and don’t just get the first mortgage that looks suitable to find the best deal for you.

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Can Canadians get an FHA loan in the US?

You may still be able to get an FHA loan as a Canadian in the United States, but it depends on your residency situation and the current requirements.

What is the difference between FHA and CMHC?

The FHA and the CMHC are similar organizations, but the FHA is based in the United States, while the CMHC is based in Canada.

Can you get a 100% mortgage in Canada?

No, you must always provide a minimum down payment of 5%. If you provide less than 20%, you must also get mortgage default insurance.

What is a good mortgage rate in Canada?

It depends on the current economic situation, but about 5%-6% is currently considered a good mortgage rate for a five-year fixed-rate mortgage.



Gravatar for Enoch Omololu, MSc (Econ)
Enoch Omololu, MSc (Econ)

Enoch Omololu, personal finance expert, author, and founder of Savvy New Canadians, has written about money matters for over 10 years. Enoch has an MSc (Econ) degree in Finance and Investment Management from the University of Aberdeen Business School and has completed the Canadian Securities Course. His expertise has been highlighted in major publications like Forbes, Globe and Mail, Business Insider, CBC News, Toronto Star, Financial Post, CTV News, TD Direct Investing, Canadian Securities Exchange, and many others. Enoch is passionate about helping others win with their finances and recently created a practical investing course for beginners. You can read his full author bio.

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