So how do I get a down payment if I want to purchase a home?

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 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 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 one's own assets are the most common form of down payment. This means that the down payment is taken from the assets of the individuals who are requesting the mortgage 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 if applicable from bank accounts of a company you own (taux hypothecaire).

? RRSP If you use a HPB (Home Buyer's Plan), a government initiative founded in 1990, you can combine it with your RSSP to create a down payment for the purchase of a home. You have to understand these regulations to see if you can qualify for such a plan - pret hypothecaire.

? Cash value of life insurance: Certain life insurance contracts have a savings element in the insurance. You can borrow an amount on the cash value of your life insurance policy and to use it as a deposit on a home - pret hypothecaire.

? Refinancing: If a potential property buyer already owns another piece of property, he may be able to refinance that property and get additional funds from the refinancing. These funds can then be used as a down payment and they would not be considered a loan since it is the borrowers own assets being utilized.

? Collateral guarantee: There is a complex method by which you can use the equity in another property, even if it is mortgaged, to guarantee the purchase of property. In essence, a collateral guarantee on the other property is thereby created - 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 ways that they use to comply with government requirements aimed at preventing money laundering.

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

A gift as a down payment

It often occurs that one receives a gift to be used as a down payment. This is fine, provided that the gift comes from a family member (spouse, child, parent, brother, sister, grandparent or sometimes an uncle or aunt) - 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 payments from other people or sources

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 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 a rare circumstance.

? 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 home loan. This strategy is a bit complex, 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 the home, and you have to complete the purchase by spring or early summer.

? Sales price balance : During the last few years, the real estate market has been extremely favorable to sellers and properties sold so quickly that down payments in the form of sales price balance practically aren't used anymore. A sales price balance is a loan by the seller to the buyer for a certain amount which is guaranteed by a second mortgage. Most banks accept down payments which come from a sales price balance - hypotheque.

What conclusions can we draw from this? You have to consider 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.