What are the ways of obtaining a down payment?



You can obtain a down payment in many 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 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

Funds coming from one's own assets are the most common kind of down payment. This means that the down payment comes from the assets of the individuals who are requesting the home loan and these same individuals will appear 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.

? Cash value of life insurance: Certain life insurance contracts have a savings element in the insurance. It is possible to borrow an amount against the cash value of your life insurance policy and to use it as a deposit 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 purchase. 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: There is a complicated method by which you can use the equity in another property, even if it is mortgaged, to guarantee the purchase of your home. In essence, a collateral guarantee on the other property is thereby created - taux hypothecaire.

Most lenders will insist that the down payment is in your possession for at least 90 days prior to depositing 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.

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 kind.

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 lending bank.

Down payment from other people or in another manner

Besides one's own money or assets, or a gift from a relative, there are other, less 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 less that is required for the down payment. The bank takes into account 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 certainproducts 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 strategy allows you to have a small down payment even if you do not have any RRSP funds in your assets. You only have to have a RRSP loan for 90 days, which is in turn reimbursed by the HPB. The new RRSP contribution will yield a tax refund which is then 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 property 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: 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 property). 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 important 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.