25 Feb

Down Payment – Getting it right the first time

General

Posted by: Kim Lindsay

Down payment is an essential component of every application when purchasing property – minimum amount required AND verifying the source of the money.

The federal government has imposed strict rules (FINTRAC anti-money laundering and anti-terrorist financing regime) that ALL federally regulated banks and lending institutions must follow.  This legislation came into effect as an attempt to prevent unscrupulous individuals from using cash down payments when purchasing properties as an easy way to launder money.

Link to more info here: https://www.fintrac-canafe.gc.ca/fintrac-canafe/antimltf-eng

 

Most Common Down Payment Sources:

GIFT (from an immediate family member): if you are receiving any  portion of the down payment as a financial gift we will provide you with a gift letter to be signed by the individual(s) gifting the funds, as well as confirmation funds have been deposited to your account

SALE OF ANOTHER PROPERTY:  copy of the Sale Contract and Trust Ledger OR Statement of Adjustments & Disbursements (from your lawyer) to verify net sale proceeds

“OWN RESOURCES” if funds are coming from your chequing/savings account(s), Investments (RRSPs, TFSAs, mutual funds, stocks, bonds, etc.), or an accumulation of these accounts, we require a 90-day history (3 full months)

A common hesitation we hear from clients is about their bank statements, which obviously include a lot of personal details. We understand your concerns and have policies and procedures to make sure your privacy and personal information is protected.  On this note, we require unaltered bank statements; blacked out names, account numbers, or any other details are NOT acceptable and will be rejected by the lender.

TRANSFERRING FUNDS from one account to another; any large transfers or deposits will have to show a (90-day) history/source of where the money went and/or where it came from.

Large or unusual deposits need to be verified as an acceptable source for down payment:

  • Received a gift from an immediate family member? Easy, we’ll provide you with a gift letter to be signed by the individual who gave you the funds
  • Sold a vehicle? Easy, provide bill of sale
  • Tax refund from CRA?  Easy, provide Notice of Assessment confirming amount
  • Transfer from your TFSA to chequing account?  Easy, provide the 90-day history for the TFSA along with withdrawal
  • *CASH DEPOSITS* less than $1,000, fine, but cash deposits over $1,000 that you cannot provide confirmation for?  Lenders will ask for source of funds.  Money that is “under the mattress” could be a deal breaker.  Funds must be deposited into a Canadian account at least 90 days prior to you placing an offer on a property.  Please talk to us BEFORE making any deposits, we will guide you on how to handle this properly.

 

CONVENTIONAL vs HIGH RATIO MORTGAGE

If your down payment is LESS THAN 20% of the purchase price, your mortgage is considered a High Ratio / Insured. These mortgages require mortgage default insurance, and the insuring companies (CMHC, Genworth, or Canada Guaranty) charge an insurance premium which is added to and paid along with your mortgage.

If your down payment is 20% OR MORE of the purchase price, you will have a Conventional Mortgage, and mortgage default insurance is not required.

 

TRADITIONAL vs NON-TRADITIONAL DOWN PAYMENT

A traditional down payment comes from sources such as savings, RRSPs, the sale of a property, or a non-repayable financial gift from an immediate family member.

Planning on borrowing money from a friend, credit card, unsecured line of credit, or personal loan?  This is considered non-traditional down payment. Additional qualifying criteria applies, we need to know this up front.

 

RRSP / HOME BUYERS PLAN

Qualifying home buyers can withdraw up to $35,000 from their RRSPs to assist with the purchase of a home – tax-free and interest-free – as long as those funds are repaid into the RRSP over 15 years. If you do not repay the amount due for that year (i.e. $35,000 / 15 years = $2,333.33 per year), it will be added to your (taxable) income for that year.

If you buy a qualifying home together with your spouse or partner, each of you can withdraw up to $35,000. The funds are not required to be used only for the down payment, but for other purposes to assist in the purchase of a home.

 

FIRST-TIME HOME BUYER INCENTIVE PROGRAM

This program launched in September 2019 to help qualified first-time homebuyers reduce their monthly mortgage payments by offering additional 5% down payment for a purchase of a resale (existing) home or up to 10% additional down payment for purchase of a newly constructed home.  It is a shared-equity mortgage with the Government of Canada; the effect of the larger down payment is a smaller mortgage, and ultimately, lower monthly costs.  The homebuyer will have to repay the Incentive based on the property’s fair market value at the time of repayment – after 25 years OR when the property is sold, whichever comes first.  The government shares in both the upside and downside of the property value at time of repayment.

 

MONEY FROM OUTSIDE CANADA

Using funds from outside of Canada is acceptable, however, you need to have the money on deposit in a Canadian financial institution for at least 30 days before your closing/possession date.

 

CLOSING COSTS

In addition to your down payment, lenders want to see that you have additional funds available for closings costs; such items as land transfer tax*, legal fees, GST/HST-if required, property tax adjustments, and interest adjustments.  The general guideline for closing costs is 1.5% of the purchase price.

*We do not have land transfer taxes in Alberta and it is highly unlikely that your closing costs will actually be 1.5% of the purchase price.  But, keep in mind that this number is commonly used by lenders when accessing overall risk/fallback, and to approximate funds that they want to see, in addition to the down payment.

 

Please be upfront with your broker and discuss your down payment at the beginning – doing so will save everyone time and stress later in the process 😊

 

3 Jul

Purchase PLUS Improvements

Mortgage Tips

Posted by: Kim Lindsay

Great neighbourhood, amazing yard, love the floor plan …

You’ve found the PERFECT HOME!  Almost.

Maybe you want to update the kitchen, replace the windows, or finish the basement.

With Purchase Plus Improvements, customizing your dream home is simple and affordable.  Buy your new home and include the renovation costs in the mortgage with as little as 5% down.

 

  • Immediately increase your home’s property value
  • Include the renovation costs at a great interest rate
  • Complete the upgrades right away and live in the home you really want!

 

EXAMPLES

  • New flooring
  • Fresh paint
  • Updated kitchen
  • New siding, eaves or facia
  • Finish the basement
  • Build a new garage
  • New roof
  • Updated bathroom
  • New windows
  • New doors
  • More efficient furnace or central air system

 

THE PROCESS

STEP 1:  Once you find a house that you like, we get you an approval based on the accepted purchase price. From there, you’ll need to get quotes from licensed contractors for the renovations/improvements. Some lenders will allow you to do the work yourselves; quotes will be for materials only.

STEP 2:  We will then have your mortgage approval revised to include the cost of the renovations.   Add the amount of the quotes to the purchase price and this becomes the new “value” of the home; your down payment is now based on this amount.

 

STEP 3:  Take possession of your new home. On your possession date, the lender advances all money (including cash for improvements) to your lawyer; seller gets their portion for sale price, the additional funds for improvements are held in trust until all work is completed.

STEP 4:  Get started on your renovations; most lenders require the renovations/improvements to be completed within 120 days after taking possession.  After all the work has been completed, we order an inspection report from an appraiser to confirm.

STEP 5:  Lender instructs your lawyer to release the funds to you.

 

VOILA!  The renovation costs are built into your mortgage at a low interest rate, you’ve increased the value of your property, and you have the beautiful home you’ve dreamed of.

 

Contact me for more details!

13 Dec

The Property Flip

Mortgage Tips

Posted by: Kim Lindsay

Flipping properties can be a very lucrative business — if done correctly!
Many clients have the vision and come across great opportunities, but their main obstacle is often CASH — finding the funds to get started.

Typically when you are purchasing a property that you do not intend to occupy as your primary residence, you’ll need a minimum 20% down payment to proceed (based on the purchase price OR current appraised value of the home, whichever is lower). If your credit, income, or “debt ratios” don’t fit standard guidelines, there are more flexible lenders out there, but prepare to increase your down payment from 20% to 25-40%.

In addition to credit, income/employment, the property itself must also be in fairly good condition for a bank to provide financing.

If the property is a ‘fixer upper’, ‘handy man special’, ‘foreclosure’, ‘former grow-op’, ‘under construction’, ‘environmental factors’, etc etc etc, it WILL be an issue for the lender … BUT it’s usually in these situations that a buyer can snag a good deal for a flip!

Introducing, THE PROPERTY FLIP MORTGAGE, an exclusive financing solution that allows borrowers to leverage their real estate up to 80% of the AFTER-RENOVATED Property Value and get in with as little as $10,000 DOWN PAYMENT!

In other words, keep the rest of your capital for the renovation costs and then SELL for a profit OR refinance the renovated property (if the property will be kept as a rental).

This type of mortgage could also be used if you were looking to renovate your own property and then sell at a much higher price — you’ll be in a position to make much more on the sale of your property to help with your next purchase.

Here is an example to illustrate how these clients kept $50,000 in their pocket to complete a successful flip:

TYPICAL FINANCING:
Purchase Price: $300,000
Down Payment (20%): $60,000
Cost of Renovations: $30,000
Total OUT OF POCKET Expenses: $60,000 + $30,000 = $90,000 (plus carrying costs)
Improved Property Value $400,000

PROPERTY FLIP MORTGAGE:
Purchase Price: $300,000
Down Payment: $10,000 (leaving $50,000 in your pocket for the improvements!)
Cost of Renovations: $30,000
Total Out of Pocket Expenses: $40,000 (plus carrying costs)
Improved Property Value: $400,000

Our lender conducts their own in-house No Fee Valuation to save you money and take advantage of quick closings, plus their mortgage is OPEN (no payout penalties when the property sells). They also provide a fantastic flip analyzer spreadsheet which is designed to calculate and budget all the costs and variables in a flip to ensure the deal is profitable and to decide:
A) If based on a certain profit objective, what the maximum purchase price can be for the property, or
B) If it is profitable enough at a certain purchase price

Profitability is the first underwriting filter; will the borrower make money?
If the answer is YES and the deal makes sense, let’s get to work!

Give me a call find out more.

Kim Lindsay
Mortgage Broker
780-221-0132
kim@kimlindsay.ca