Flexible down payment mortgage:
We regularly work with clients who have questions about how they can obtain the 5% down payment required by the government to purchase their new home. The good news is that there are several creative, cost effective, and flexible down payment mortgage options for you. We have included some details below and please always feel free to contact us with any questions.
The 5% borrowed down payment (zero down) mortgage:
The government of Canada through the mortgage insurers require all purchasers in Canada to have a minimum of 5% of their purchase price for down payment. We do have some flexibility as to how we obtain your required 5% down. The insurers allow us to borrow your down payment from an unsecured line of credit for your new home.
This is called the Flex down payment mortgage. There are only a handful of lenders remaining in Canada who participate within this program however if you fit the qualifications then we are able to help you purchase your new home with no down payment from your own funds and also obtain best rates and terms for you in the process.
The approval for this mortgage is a two step process:
*Step one, we obtain both an unsecured line of credit with interest only payments for our clients to use for their 5% down payment.
*Step two, we obtain your mortgage approval and use the line of credit from step one for the 5% down payment
The gifted down payment mortgage:
As we discussed previously, the insurers require 5% down payment. One of the most flexible options that we have to obtain this down payment, if you do not have it from your own savings, is from a family gift. It is very common for families to give each other down payment funds to purchase a new home.
The process is simple, we just have your immediate family member who is gifting the funds sign a templated gift letter and then we obtain a copy of your bank statement showing that the funds for down payment have been deposited.
With this option we are also able to obtain best rates and terms for you.
The gifted equity down payment mortgage:
When clients are purchasing a home from a family member often we see the selling family member wanting to sell the home to our client at a reduced price. If structured correctly, this can be an excellent win/ win scenario for both family members. The reason for this is we are able to approve a mortgage for the sale amount so that the selling family member receives the funds that they require. Then we are able to use the remaining equity (the discounted amount) as the down payment for the purchase. This results in the purchaser often not being required to use any of their own funds for down payment. The reason that we are able to do this is that with some lenders we are able to consider the remaining equity a gift and call it “gifted equity”. In many cases this can save our clients thousands of dollars of CMHC insurance premium.
Our client’s new home that they are purchasing is worth $400 000, the family member who currently owns it agrees to sell the home at $315 000, and our purchaser has $20 000 down payment. If we completed this purchase at $315 000 with $20 000 down payment, our client would receive best rates and terms however as they only have 5% down payment they would have an additional CMHC insurance cost of $8112.50 added to the mortgage.
However if we complete the purchase at $400 000 with $85 000 of gifted equity and $20 000 cash our client would receive the same best rates and terms but would not have to pay the insurance premium and would save over $8000.
By working with a mortgage professional who understands how to work with these lender programs and use them to your advantage you can save thousands of dollars. We want to work with you, please feel free to contact us via our online contact form, phone, or via online application.