(Closed) Borrowing a down payment for a house?

posted 7 years ago in Home
Post # 17
Member
3112 posts
Sugar bee
  • Wedding: May 2018

@CanAmBride:  you won’t get denied for having new cash in your account. you will just have to show where it came from via bank statements from whomever gave it to you. the gift i received was deposited just 2 weeks ago and i submitted my mortgage application this week.

Post # 18
Member
3942 posts
Honey bee

My in laws offered us a loan. They had more than enough in cash, and our rent was more than a mortgage payment would be. Meaning, we could never save up enough money. We did sign a gift letter stating it’s a gift and not expected to be paid back, but we DID pay them back immediately with the $8K first time homebuyer credit.

Post # 19
Member
3374 posts
Sugar bee
  • Wedding: October 2011

I think the bank checks to see if you’ve done this.

Saving up money takes a long time, but it’s really rewarding!

Post # 20
Member
10650 posts
Sugar Beekeeper
  • Wedding: January 2011

To clear up the confusion, gifts are allowed and are not taxable. There are no FHA loans here.

I would worry about lying on such a huge purchase though.  It might be slightly different if the loan brought up your downpayment to 20%.  You should look into what happens if you do get behind on your mortgage payments, you might be on the hook for more than just the mortgage at that point.  Could CMHC (or Genworth or whoever you are using) sue you if they somehow discovered it was a loan and not a gift (possibly by seeing payments going to your mom)?

As for the loan itself, what are the terms for paying it back?  The LOC is likely a variable rate, what happens if interest rates go up?

Where are you buying in ON?  You should take into account what the market may be doing in the next year.  For example, I really wouldn’t want to buy a condo in the GTA right now.

Don’t forget about closing costs.  You would still need to cover those, along with the land transfer tax (which we don’t have here).

If you haven’t been able to save up anything for a downpayment, will you be able to pay for any repairs the house will need over time?  Do you have RRSPs?  If so, have you considered using the HBP?

There are rent vs. buy calculators.  Renting isn’t flushing money away, it is paying for shelter.  You’d be surprised how often renting is actually better than buying, especially in the current market as repairs, general maintanance, property taxes, and insurance on your mortgage add up too.

 

Post # 21
Member
2232 posts
Buzzing bee
  • Wedding: September 2012

@FutureMsVW:  This is exactly how it works. 

Banks in Canada are not looking to see if the downpayment is truly your because they want to see that you earned it (they verify if you’re able to handle the mortgage based on your income). What banks are looking for are money laundering, fraud etc. As a realtor I’m required to complete additional paperwork for any amount that is $10k or over indicating what account and who the money is coming from. 

As for borrowing the downpayment I think you really need to figure out the numbers and see if it would be worth it. My Fiance did exactly this, his parents lent him money from a line of credit (a gift according to the bank) that he then paid over a period of time. The biggest reason for him doing this was to avoid paying CMHC fees, it saved him several thousand even with the interest he paid on it. However, he already had a good chunk of a downpayment so he was just trying to avoid the fees. 

I don’t know where you are in Ontario but housing prices can be ridiculous in some areas so I get wanting to buy asap. I would really urge you that if you were to go this route that you have some money saved up on the side to be able to cover any emergencies. 

Post # 23
Member
3942 posts
Honey bee

@O.My.Heart:  It was a tax credit for first time homebuyers in the US when we bought our hosue a few years ago. As far as I know it doesnt exist anymore.

Post # 24
Member
2232 posts
Buzzing bee
  • Wedding: September 2012

The first time home buyer credit that PP mentioned does not apply to you since it’s a US only thing. As a First Time Home Buyer in Ontario you will receive a maximum $2000 credit that will be applied to your land transfer taxes. So you will never see this money. There is a specific way to calculate land transfer fees but roughly they are 1% of the selling price. 

If you have less than 20% down your mortgage needs to be insured. This is done throught CMHC or Genworth. Here is a chart of the premiums: http://www.cmhc.ca/en/co/moloin/moloin_005.cfm

The premiums are tacked onto your mortgage and become part of your payments. 

Lots more info on the CMHC website about buying a house: 

http://www.cmhc.ca/en/co/buho/index.cfm

 

Post # 25
Member
1849 posts
Buzzing bee
  • Wedding: May 2014

We borrowed money from FI’s parents for a downpayment because our monthly costs went down from renting and our standard of living went way up. I probably wouldn’t have, but he was super gung-ho about buying. They had the money in cash, but are charging us 4% interest anyway until we pay it back. The bank knew that the down payment was “gifted” and it didn’t preclude us from getting approved at all based on our credit scores and income. I hope that helps! 

Post # 27
Member
7310 posts
Busy Beekeeper
  • Wedding: October 2011 - Bed & Breakfast

@O.My.Heart:  Saving for your down payment is an awesome choice! Think of it as really good practice for all of the saving you’ll be doing in the future. And it will feel so good to know that you did it on your own, without the help of your parents. 🙂

Post # 28
Member
9130 posts
Buzzing Beekeeper
  • Wedding: August 2013 - Rocky Mountains USA

I borrowed 10k from my parents to help with the down payment, and due to a very low mortgage and a new pretty well-paying job, I’ve been able to pay back half of that within 3 months.  Now going to pay off 2-300/month for the next couple years.  I think that IF you can afford to do the mortage plus the down payment loan payments each month with no problem, it’s a good idea.  DON”T do it if that’s stretching things! 

Post # 29
Member
772 posts
Busy bee
  • Wedding: December 2011

Probably a good idea.  Don’t forget that there are also all maintenance expenses.  You can rapidly get in over your head after you get into the home depending on what breaks, goes wrong, etc. 

Post # 30
Member
3470 posts
Sugar bee
  • Wedding: July 2012 - The Gables Inn, Santa Rosa, CA

This may have already been mentioned, I only skimmed the other responses, but I’m about 99% positive what you’re suggesting is ILLEGAL.  You can’t get a loan to pay for a loan.  I know for sure in the US it’s illegal, and it likely is in Canada too.  

Your mom would need to sign a gift letter stating that she was GIVING you the money, and you are not expected to pay her back– lots of people do this and lie, then pay back their parents down the road, which is still wrong but largely overlooked.  But you’re talking about a line of credit– when the bank investigates the deposit into your account, you’ll have to disclose where that money came from, and when your mom says it’s from her LOC, it’s no longer a cash gift– it’s a loan that she took out “for” you.  You likely wont be allowed to use it as a downpayment, and she could even get penalized depending on the terms of her LOC. 

Post # 31
Member
3470 posts
Sugar bee
  • Wedding: July 2012 - The Gables Inn, Santa Rosa, CA

Or more accurately, when your mom’s bank says it’s from her LOC… 

This is a BAD idea, unless you have the cash available, you can’t afford to buy right now– a line of credit is NOT cash. 

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