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

When you apply for a mortgage, one of the most important issues the bank will look at is whether you have a down payment and how much it is. Even a small one will have an impact on the loan - hypotheque.

What are the methods of obtaining a down payment?

You can obtain a down payment in a lot of different ways. Some are fairly standard ones and others are ones you may not know about, but I have learned of over the many years I have been helping people get their mortgages. There are basically three ways - hypotheque: -Your own funds -A gift from a relative -Funds obtained from other people or in a different way.

Down payment from your own assets

Using your own money is the most common way that people come up with a down payment for a house. This is simply a part of the assets of the potential home buyer (who will own the property) that is put down for the mortgage. These assets can be in different forms:

• Savings These funds may come from a the borrower’s bank account, from liquidating investments (non retirement investments) or even from a bank account that is owned by a company that is owned by the borrower. (taux hypothecaire)

• RRSP Using a Home Buyer’s Plan (HPB), an initiative of the Canadian government that was put into effect in 1990, a home buyer may use the RRSP to fund a down payment. You have to know the rules 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 as a part of 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: If you own a property already, you may be able to refinance it and obtain the funds for a down payment on another property purchase. In this case, the down payment is not considered a loan because it is basically your own funds that you are drawing against.

• 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 complicated 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 at least 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 means is that you should not be keeping your money in cash under the mattress 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 must 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.

This kind of a gift has to be accompanied by a “gift letter”. This is a letter that stipulates 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 will require that the gift funds are deposited into the bank account of the purchaser of the property prior to the processing of the loan application.

Down payment from other people or in another manner

Besides the above methods of your own or relatives money for a down payment, there are other less well know ways to find a down payment:

• A gift from the bank In other words, a no down payment loan. The bank is effectively giving you a gift to use as a down payment on your home loan. Of course, the bank takes this into account, and the rate on such a loan will be a bit higher so that the bank makes sure it’s get paid back for the gift in the form of more earnings - taux hypothecaire.

• Loan There are products available under CMHC programs that permit a down payment to come from a loan. This is very unusual.

• RRSP loan following an HPB: Using your HPB, you can create a small down payment for your home deposit, even if you do not have an RRSP right now. You have to keep out the RRSP loan for 90 days and then the loan is reimbursed by the HPB. You will get a tax refund because of the RRSP contribution, and you use this refund to make the down payment on your mortgage. This strategy is a bit complicated, so I would advise you to contact an RRSP loan specialist to work on it with you. You have to start the RRSP loan before February, you have to already be in negotiations for your purchase, and you have to complete the purchase by spring or early summer.

•Sales price balance: The real estate market has been a “seller’s market” over the last couple of years, and so properties have been selling quickly. This means that a down payment in the form of a sales price balance is not needed. 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

What conclusions 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 happy to work with you to lay out the strategy to find the funds for your down payment.

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