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BBQPorkBun
Jul 24th, 2006, 04:45 PM
Hi,
I was wondering if its ok to finance your downpayment with debt, more specifically a line of credit. Thanks.
bacid1
Jul 24th, 2006, 05:57 PM
no bank will let you do this. the only way you could do this is to have someone else borrow the money, give it to you, then you pay them back. of course you would have to lie to your bank and tell them it was a "gift".

the other solution is to get a 0% down mortgage, but the interest rate is higher.
BBQPorkBun
Jul 24th, 2006, 11:30 PM
no bank will let you do this. the only way you could do this is to have someone else borrow the money, give it to you, then you pay them back. of course you would have to lie to your bank and tell them it was a "gift".

the other solution is to get a 0% down mortgage, but the interest rate is higher.

Why? couldn't I use the LOC any way i want. say i need 20k more for a down payment, get it from LOC at CIBC with mortgage at TD?
stevethewheel
Jul 24th, 2006, 11:32 PM
I don't think the bank will stop you, but it might be smart not to make a big fuss about it.
ssainani
Jul 24th, 2006, 11:56 PM
Why? couldn't I use the LOC any way i want. say i need 20k more for a down payment, get it from LOC at CIBC with mortgage at TD?

the downpayment needs to be from 'unborrowed funds'
HamsterGirl35
Jul 25th, 2006, 02:11 AM
Why does it need to be 'unborrowed funds'? Who said that?

the downpayment needs to be from 'unborrowed funds'
milhaus
Jul 25th, 2006, 06:35 AM
You have to either be able to readily identify the source of the funds; i.e. gift from parents needs a letter, RRSPs, etc. The reason is precisely so that people don't do this!! The only way to do a 0% mortgage is through CHMC and by declaring it.
ssainani
Jul 25th, 2006, 07:36 AM
Why does it need to be 'unborrowed funds'? Who said that?


it'll be one of your mortgage conditions to get approval generally
Philippe
Jul 25th, 2006, 07:36 AM
You have to either be able to readily identify the source of the funds; i.e. gift from parents needs a letter, RRSPs, etc. The reason is precisely so that people don't do this!! The only way to do a 0% mortgage is through CHMC and by declaring it.

Made a 33k$ downpayment with TD, they did not ask for any info where the money came from (it was all last minute incomes, not pilled up funds over the years).
William W
Jul 25th, 2006, 09:27 AM
the downpayment needs to be from 'unborrowed funds'

I'm not sure whether that's the case all the time, or where you got this from.

I just did a 100% finanicng on a new property that I purchased. 75% mortgage on the house itself, and 25% on a secure line of Credit. And it was the bank who co-ordinate all these on my behalf. I was very upfront about it and they never raised a question about it.
gedwards
Jul 25th, 2006, 12:12 PM
the downpayment needs to be from 'unborrowed funds'

This is not really true anymore. Although some types of loans and lenders stick by that there are more and more products everyday that allow 100% financing of properties including "cash back" on the mortgage or using borrowed funds for the downpayment.

Any financing beyond 75% of the property value will require mortgage insurance. CMHC as one of the main insurers has a "flex down" product that allows you to borrow from an approved lender..."If you have a proven track record of meeting your debt requirements and sufficient income to support mortgage loan payments, your lender may be able to provide you with CMHC’s Flex Down product. Sources for your down payment can include: borrowed funds, gifts and lender cash back incentives."

That said I think in all but a few cases it can be a pretty bad idea to buy a home with 0% down (if the reason for putting 0 down is that you can not afford a downpayment). If you can't put anything down on the house how will you cover the thousands in closing costs, buying furniture and numerous household items (if it is your first home), unexpected repairs etc. There are of course exceptions to this rule (ie payments are well within affordability guidelines for your income level)

Also you may find that buying homes with 0% down MIGHT mean that your interest rates are not as competative on your mortgage (or mortgage and line of credit combination) vs using a high down payment. Higher down payments often mean there are more mortgage products/lenders available to choose form.
Tiberius
Jul 25th, 2006, 12:20 PM
I'm not sure whether that's the case all the time, or where you got this from.

I just did a 100% finanicng on a new property that I purchased. 75% mortgage on the house itself, and 25% on a secure line of Credit. And it was the bank who co-ordinate all these on my behalf. I was very upfront about it and they never raised a question about it.

The fact that your downpayment came from a "secure" line of credit probably is what made this so acceptable for the bank. Even though the 25% was "borrowed" against the line of credit, the bank knows they can get hard assets to back up that credit if necessary - so it is like you are paying actual tangible cash (in essense, you are paying your downpayment with whatever you have backing up the secured LOC)
st7860
Jul 25th, 2006, 12:57 PM
Hi,
I was wondering if its ok to finance your downpayment with debt, more specifically a line of credit. Thanks.

get a GIFT letter from your relative.
monomono
Jul 25th, 2006, 02:21 PM
I've used a personal line of credit for downpayment on a mortgage. I wanted the mortgage to be no more than 75% so I used about 25k from a LOC. The bank didn't care where the money came from - in fact the LOC was with the same bank as the mortgage.
monomono
Jul 25th, 2006, 02:22 PM
The fact that your downpayment came from a "secure" line of credit probably is what made this so acceptable for the bank. Even though the 25% was "borrowed" against the line of credit, the bank knows they can get hard assets to back up that credit if necessary - so it is like you are paying actual tangible cash (in essense, you are paying your downpayment with whatever you have backing up the secured LOC)

It's got nothing to do with assets. They look at your total income and make sure you can afford to make the monthly payments on your gross debt.
Jacklad
Jul 25th, 2006, 02:53 PM
I've used a personal line of credit for downpayment on a mortgage. I wanted the mortgage to be no more than 75% so I used about 25k from a LOC. The bank didn't care where the money came from - in fact the LOC was with the same bank as the mortgage.

Me too - we used our RBC LOC as the source for the downpayment on a rental property just last summer. RBC was well aware of the arrangement.

Jackie
sunnybono
Jul 25th, 2006, 03:27 PM
Hi,
I was wondering if its ok to finance your downpayment with debt, more specifically a line of credit. Thanks.


I finance all my rental properties this way!!!! Downpayment comes from LOC & Mtg comes from FI.. At qualify time, I show the bank that I have to funds in my Waterhouse account for the downpayment!!! At time of closing, I take the funds from my LOC!!!!

sk :)
BBQPorkBun
Jul 25th, 2006, 03:57 PM
get a GIFT letter from your relative.

Gift? If anything they need the gift, i take care of my parents too. :(

Thanks for everyone's input, as of now I don't see why I can't at least try. I have maybe half the downpayment, seeing if i can get the rest on a separate LOC.