The Different Strategies To Acquire A Down Payment (taus Hypothecaire)

By Author: Gregory van Duyse
Total Articles: 9
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Once you start negotiating for a home loan, one of the most important things a bank will look for is a down payment. Even a small down payment will have an impact on your mortgage - hypotheque.

How can I obtain a down payment for my mortgage?

You can obtain a down payment in many different ways. Some are fairly common ones and others are ones you may not know about, but I have learned of over the many years I have been helping people obtain 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 selling 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: It is possible with the HPB (Home Buyer's Plan) that the Canadian government initiated in 1990, to use your RRSP as a down payment for the purchase of a home. It is important to know the regulations of HPB to make sure they apply to you - pret hypothecaire.

Life insurance cash value: Some life insurance policies have a cash value tied to them and the policy holder can borrow against this cash value and create a down payment for the purchase of a home - pret hypothecaire.

Refinancing: It is possible to refinance a property that you already own to create a down payment on a new property. The down payment that comes from a refinancing is not considered 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 complicated procedure that effectively creates a collateral guarantee on the other property - taux hypothecaire.

The vast majority of lenders require that the down payment be in your possession for the prior 90 days. It is one of the methods that they use to comply with government regulations aimed at preventing money laundering.

All of this says that if you have your money in cash (under the mattress) you will risk your lender not being comfortable with your down payment.

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.

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 insist that the gift funds are deposited into the bank account of the purchaser of the property prior to the processing of the mortgage application.

Other kinds of down payments

Besides one's own money or assets, or a gift from a relative, there are other, less used ways of getting a down payment on a property:

A bank gift: By this we mean that the bank, in the guise of a no down payment loan, is giving you a gift of a down payment. The bank will give you the 5% or less that is required for the down payment. The bank considers 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 someproducts that are insured 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.

RRSP loan following an HPB: This method allows you to have a small down payment even if you do not have any RRSP funds in your portfolio. You only have to have a RRSP loan for 90 days, which is in turn paid down by the HPB. The new RRSP contribution will yield a tax refund which can be used as a down payment. This strategy works for those who begin the RRSP loan before February, have already entered into negotiations to buy a home and who foresee buying a house at the end of spring or the beginning of summer, at the latest. It is recommended that you to contact an RRSP loan specialist.

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 tool because the market has been favorable to sellers and they do not need to offer this inducement in order to sell. It consists of the seller lending money to the buyer. A bank will generally accept a down payment that comes from a sales price balance even though it is a loan - hypotheque.

What does all of this tell us? A down payment is an extremely important part of the home loan process. If you want to look at all of the possibilities open to you to get the funds for your down payment, we would be very happy to work with you to lay out a plan to obtain the funds for your down payment.