647-979-9154

CMHC MLI Select Program: A Comprehensive Guide for Investors

Introduction

The Canada Mortgage and Housing Corporation (CMHC) MLI Select program is a federal initiative aimed at expanding Canada's rental housing market. It offers mortgage loan insurance for multi-unit residential properties of 5 units or more, promoting the creation of affordable, accessible, and energy-efficient housing. A key advantage for investors is the potential for highly cash flow positive investments, with loan-to-value ratios up to 95% (as little as 5% down) and amortization periods extending up to 50 years, significantly lowering monthly mortgage payments.

Key Features of the MLI Select Program

  1. Eligibility: Open to rental property owners, developers, investors, property management firms, and non-profit organizations involved in multi-unit residential properties.
  2. Scoring System: Projects are rated based on three pillars:
    • Affordability
    • Accessibility
    • Climate compatibility (energy efficiency)
  3. Minimum Requirements: Borrowers must earn at least 50 points to qualify for benefits.
  4. Property Types: Includes new and existing affordable housing projects like standard rental housing, single room occupancy (SRO), supportive housing, and retirement homes.

Benefits of the MLI Select Program

Properties scoring higher in social and environmental impact receive greater incentives, including:

  • Up to 95% loan-to-value ratios
  • Amortization periods of up to 50 years
  • Below-prime interest rates
  • 10-year mortgage terms for stable cash flow
  • Reduced minimum debt coverage ratios
  • Lower insurance premiums

Down Payment Requirements

While the program advertises down payments as low as 5%, borrowers typically need to prepare for a 5-10% down payment.

Financing Options

Land and Construction Financing

Investors purchasing land and constructing buildings can secure:

  1. An MLI Select construction loan
  2. An MLI Select mortgage upon closing

Pre-construction Purchases

When buying from a builder (pre-construction):

  • An MLI Select certificate of insurance must be secured within 6 months of project completion.
  • Many pre-construction purchases occur more than 6 months in advance.
  • Some builders may allow a financing clause; others may not.
  • Certain builders require a 10% down payment at purchase, with a 5% refund upon closing when CMHC funding is secured.

MLI Select Financing Rules and Requirements

Liquid Cash Requirement

In addition to the down payment, borrowers must have 10-15% of the purchase price available in liquid cash.

Net Worth Requirement

Borrowers need a net worth equal to at least 25% of the loan amount requested.

Net Worth Calculation Rules

  • All business owners must be part of the deal to qualify the business as net worth.
  • Only liquid and hard assets are counted; perceived company value is excluded.
  • For real estate assets:
    • Only equity value counts, not mortgaged portions.
    • All property owners must be involved; if not, only their percentage ownership contributes to net worth.

Additional Eligibility Criteria

  1. Property Type and Size: Eligible properties include affordable, energy-efficient, and/or accessible housing projects with a minimum of 5 units (50 units/beds for retirement homes).
  2. Non-Residential Component: Should not exceed 30% of gross floor area or total lending value.
  3. Scoring System: Borrowers must achieve a minimum of 50 points based on affordability, accessibility, and climate compatibility.
  4. Borrower Experience: The borrower or an affiliated corporation must have at least five years of management experience in similar multi-unit residential properties.
  5. Financial Strength: Borrowers must demonstrate competence and experience relevant to the property size and type.

Application Process

  1. Documentation: Applicants provide detailed documentation on project viability, energy efficiency, and financial projections.
  2. Review Process: The application review typically takes 4-6 weeks, with potential requests for additional information.
  3. Approval: Successful applicants must meet approval conditions and finalize agreements before starting their projects.

Impact and Uptake

The MLI Select program has gained popularity among Canadian developers. In 2023, over 127,000 rental units were insured through MLI Select, contributing to nearly triple the climate-compatible homes CMHC targeted that year.

Conclusion

The CMHC MLI Select program serves as a catalyst for financing the acquisition, construction, or renovation of multi-unit residential properties, enhancing Canada's rental housing stock. By providing flexible financing options and incentives for energy-efficient development, the program addresses housing challenges while fostering inclusive communities.Investors interested in the MLI Select program should consider these requirements and benefits when planning their multi-unit residential property investments, particularly given the potential for creating highly cash flow positive investments through favorable financing terms.