Mortgage tips: How to get downpayment for your mortgage - hypotheque.

The down payment is a critical part of your total mortgage application. In order to access the best available rates, you should have at least a small down payment - hypotheque.

What are the methods of obtaining a down payment?

There are many different ways to obtain a down payment for your home. There are the standard, usual ones, but there are others that most people don’t know about but I have learned about during the many years I have been advising my clients regarding their mortgages. Basically, there are three ways - hypotheque:
A. Your own money
B. A gift from a relative
C. Funds obtained from other people or in a different way

Your own money

Funds coming from one’s own assets are the most common kind of down payment. This means that the down payment is taken from the assets of the individuals who are requesting the home loan and these same individuals will be on the property title.

• Personal savings: Can be from funds in your bank account, your investments (non-RRSP-Registered Retirement Savings Plan), and even sometimes from bank accounts of a company you own (taux hypothecaire).

• RRSP Using a Home Buyer’s Plan (HPB), an initiative of the Canadian government that was passed in 1990, a home buyer may use the RRSP to fund a down payment. You have to know the regulations of this initiative and understand if and how it applies to you - pret hypothecaire.

• Life insurance cash value: There are life insurance contracts that have a savings piece attached to them that permit the policy holder to borrow against the cash value of the policy. This withdrawal can then be used as a down payment on a home - pret hypothecaire.

• Refinancing: It is possible to refinance a property that you already have to create a down payment on a new property. The down payment that comes from a refinancing is not treated as a loan since you are withdrawing assets you have in your own property.

• Collateral guarantee: In certain cases, it is possible to use the equity in another property, whether or not it has a mortgage attached to it, to guarantee the purchase of another property. This is a complex procedure that effectively creates a collateral guarantee on the other property - taux hypothecaire.

Most lenders will insist that the down payment is in your possession for at least 90 days prior to using them as a down payment on a home. They have this condition in order to comply with regulations the government has imposed upon them to prevent money laundering.

This all tells us that if you have saved up your money in cash, your lender will have a problem with the down payment for the purchase of property.

Using a gift as a down payment

A gift can be given to a home buyer and s/he can use that as the down payment on a home. The gift has to come from a relative. A spouse, parent, grandparent or child can make this gift. Even a gift from an aunt or uncle will qualify - hypotheque.

A gift of this nature has to be accompanied by a gift letter. This letter explains that the funds being given are an unencumbered gift, not a loan of any sort.

Lenders, for the most part, will want to see that the funds are already in the bank account of the borrower, and not transferred directly from the donor to the mortgage bank.

Down payment from other people or in another manner

A down payment that comes from another source besides the personal assets of the borrower or a gift is rather rare, but there are possibilities.

• A gift from the bank : This is actually a no down payment home loan because it is the bank that gives you the 5% (or less) for the down payment. Of course, the bank has calculated everything, and the rate will be a little higher in order that the “gift” is repaid before the end of the term of the loan - taux hypothecaire.

• Loan: Certain products that are insured by CMHC allow for the down payment to come from a loan. This is a rare situation.

• RRSP loan following an HBP: In this type of strategy, you can get a small down payment for your mortgage even if you do not currently have any funds in an RRSP. You have to have the RRSP loan for 90 days, after which time it is then reimbursed by the HPB. The RRSP contribution gives you a tax refund which you then use for your down payment. In order to use this strategy, you have to start the RRSP loan before February, already have the negotiations for the purchase of the property in effect, and buy the property at the end of spring, or latest, at the beginning of the summer. If you feel that this may work for you, I’d advise you to contact a RRSP loan specialist.

•Sales price balance: The real estate market has been a “seller’s market” over the last few years, and so properties have been selling quickly. This means that a down payment in the form of a sales price balance is not a necessity these days. A sales price balance is a mechanism whereby the seller loans funds to the buyer (to encourage the purchase of the home). Banks generally accept a down payment that comes from a sales price balance. - hypotheque

CONCLUSION: The down payment is one of the most important conditions of a lender for mortgage loans. There are many strategies to get a minimum down payment for your home loan. We would be very pleased to help you plan the down payment for your next purchase.

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Gregory is an Accredited Mortgage Professional (AMP). To get more information on mortgages - prêt hypothecaire, please visit: Pret hypothecaire