The down payment is an important part of your total mortgage a lication. In order to acce the best
The down payment is an important part of your total mortgage a lication. In order to acce the best available rates, you have to have at least a small down payment - hypotheque.
How can I obtain a down payment for my home loan?
There are many different ways to obtain a down payment for your property. There are the standard, usual ones, but there are others that most people dont know about but I have learned about during the many years I have been advising my clients regarding their mortgages. Basically, there are three methods - 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 ones own a ets are the most common form of down payment. This mea that the down payment comes from the a ets of the individuals who are requesting the mortgage and these same individuals will a ear on the property title.
Personal savings: Can be made up of funds in your bank account, your investments (non-RR -Registered Retirement Savings Plan), and even if a licable from bank accounts of a company you own (taux hypothecaire).
RR : It is po ible with the H (Home Buyers Plan) that the Canadian government initiated in 1990, to use your RR as a down payment for the purchase of a home. It is important to know the rules of H to make sure you are able to use this method - pret hypothecaire.
Cash value of life i urance: Certain life i urance contracts have a savings element in the i urance. You can borrow an amount on the cash value of your life i urance policy and to use it as a deposit on a home - pret hypothecaire.
Refinancing: If you own a property already, you might be able to refinance it and generate the funds for a down payment on another property purchase. In this case, the down payment is not co idered a loan because it is basically your own funds that you are drawing agai t.
Collateral guarantee: In certain cases, you can 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.
Lenders, in most cases, will require that any funds used for a down payment already be in your bank account for a minimum of 90 days prior to them being used as a down payment. They do this in order to meet the terms of government requirements designed to prevent money laundering.
What this mea is that you should not be keeping your money in cash under the mattre or buried in the yard if you want to use it as a down payment for a mortgage.
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 ouse, parent, grandparent or child can make this gift. Even a gift from an aunt or uncle will qualify - hypotheque.
This kind of a gift has to be accompanied by a gift letter. This is a letter that explai that the money is a gift and not a loan that has to be repaid. (see this link for a blank gift letter you can use).
Most lenders i ist that the gift funds are deposited into the bank account of the purchaser of the property prior to the proce ing of the mortgage a lication.
Down payment from other people or in another ma er
Besides ones own money or a ets, or a gift from a relative, there are other, le used sources for a down payment on a property:
A bank gift: By this we mean that the bank, in the guise of a no down payment mortgage, is giving you a gift of a down payment. The bank will give you the 5% or le that is required for the down payment. The bank co iders the fact that it is not your down payment, and the interest rate on the mortgage will be a little higher to reflect this - taux hypothecaire.
A loan: There are certai roducts that are i ured by the CMHC that will allow the down payment for a property to come from the proceeds of a loan. This is not a common occurance.
RR loan following an H : Using your H , you can create a small down payment for your home deposit, even if you do not have an RR at this time. You have to keep out the RR loan for 90 days and then the loan is reimbursed by the H . You will get a tax refund because of the RR contribution, and you use this refund to make the down payment on your home loan. This strategy is a bit complicated, so I would advise you to contact an RR loan ecialist to work on it with you. You have to start the RR loan before February, you have to already be in negotiatio for the home, and you have to complete the purchase by ring or early summer.
Sales price balance: In the last few years, there has not been a lot of use of the sales price balance as a down payment option because the market has been favorable to sellers and they do not need to offer this inducement in order to sell. It co ists of the seller lending money to the buyer. The banks will generally accept a down payment that comes from a sales price balance even though it is a loan - hypotheque.
What conclusio can we draw from this? You have to treat the down payment as one of the most critical pieces of your mortgage. If you are unclear about how you can come up with a down payment, we would be ha y to work with you to lay out the strategy to find the funds for your down payment.
How can I obtain a down payment for my home loan?
There are many different ways to obtain a down payment for your property. There are the standard, usual ones, but there are others that most people dont know about but I have learned about during the many years I have been advising my clients regarding their mortgages. Basically, there are three methods - 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 ones own a ets are the most common form of down payment. This mea that the down payment comes from the a ets of the individuals who are requesting the mortgage and these same individuals will a ear on the property title.
Personal savings: Can be made up of funds in your bank account, your investments (non-RR -Registered Retirement Savings Plan), and even if a licable from bank accounts of a company you own (taux hypothecaire).
RR : It is po ible with the H (Home Buyers Plan) that the Canadian government initiated in 1990, to use your RR as a down payment for the purchase of a home. It is important to know the rules of H to make sure you are able to use this method - pret hypothecaire.
Cash value of life i urance: Certain life i urance contracts have a savings element in the i urance. You can borrow an amount on the cash value of your life i urance policy and to use it as a deposit on a home - pret hypothecaire.
Refinancing: If you own a property already, you might be able to refinance it and generate the funds for a down payment on another property purchase. In this case, the down payment is not co idered a loan because it is basically your own funds that you are drawing agai t.
Collateral guarantee: In certain cases, you can 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.
Lenders, in most cases, will require that any funds used for a down payment already be in your bank account for a minimum of 90 days prior to them being used as a down payment. They do this in order to meet the terms of government requirements designed to prevent money laundering.
What this mea is that you should not be keeping your money in cash under the mattre or buried in the yard if you want to use it as a down payment for a mortgage.
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 ouse, parent, grandparent or child can make this gift. Even a gift from an aunt or uncle will qualify - hypotheque.
This kind of a gift has to be accompanied by a gift letter. This is a letter that explai that the money is a gift and not a loan that has to be repaid. (see this link for a blank gift letter you can use).
Most lenders i ist that the gift funds are deposited into the bank account of the purchaser of the property prior to the proce ing of the mortgage a lication.
Down payment from other people or in another ma er
Besides ones own money or a ets, or a gift from a relative, there are other, le used sources for a down payment on a property:
A bank gift: By this we mean that the bank, in the guise of a no down payment mortgage, is giving you a gift of a down payment. The bank will give you the 5% or le that is required for the down payment. The bank co iders the fact that it is not your down payment, and the interest rate on the mortgage will be a little higher to reflect this - taux hypothecaire.
A loan: There are certai roducts that are i ured by the CMHC that will allow the down payment for a property to come from the proceeds of a loan. This is not a common occurance.
RR loan following an H : Using your H , you can create a small down payment for your home deposit, even if you do not have an RR at this time. You have to keep out the RR loan for 90 days and then the loan is reimbursed by the H . You will get a tax refund because of the RR contribution, and you use this refund to make the down payment on your home loan. This strategy is a bit complicated, so I would advise you to contact an RR loan ecialist to work on it with you. You have to start the RR loan before February, you have to already be in negotiatio for the home, and you have to complete the purchase by ring or early summer.
Sales price balance: In the last few years, there has not been a lot of use of the sales price balance as a down payment option because the market has been favorable to sellers and they do not need to offer this inducement in order to sell. It co ists of the seller lending money to the buyer. The banks will generally accept a down payment that comes from a sales price balance even though it is a loan - hypotheque.
What conclusio can we draw from this? You have to treat the down payment as one of the most critical pieces of your mortgage. If you are unclear about how you can come up with a down payment, we would be ha y to work with you to lay out the strategy to find the funds for your down payment.
