Answering Your Questions (The Easy Way)
Sometimes it doesn’t matter how much time you spend with a client, or how much that client has researched their upcoming investment; navigating the process of obtaining a mortgage and buying a home is rarely as straightforward as it should be.
In response to some of your most frequently asked questions on down payments, I’ve cobbled together a CliffsNotes of sorts to help simplify the process.
- I AM LEAVING A COMMON LAW RELATIONSHIP, BUT I PAID THE DOWN PAYMENT. IS THE HOUSE MINE?
In B.C., a couple who has lived together for two years or more as common law are essentially treated as a married couple. This means that despite which one paid the down payment, the house is viewed as family property and will be divided equally.
- CAN I GET A DOWN PAYMENT FROM MY SPOUSE (EVEN IF THEY’RE NOT ON THE TITLE)?
Some lenders will allow for spousal gifts. It gets tricky when the couple is not married. Generally a gift can only come from an immediate family member and for most lenders, immediate family member does not include your spouse.
- CAN I USE MY RRSP FOR A DOWN PAYMENT?
However…Although the CRA’s Home Buyers’ Plan allows you and your common-law partner or spouse to withdraw without accumulating interest, you must begin paying back the amount in the second year and fully pay off the outstanding amount within 15 years.
- IS THE MINIMUM DOWN PAYMENT ON A HOME UNDER 500K STILL 5 PER CENT?
- IS THE MINIMUM DOWN PAYMENT ON A HOME OVER A MILLION STILL 20 PER CENT?
Minimum downpayment for homes over a million dollars is 20% but most lenders have a sliding scale policy which requires larger down payments for more expensive homes. For example, most lenders will give you 80% of the fist 1.25~1.5 Million and only 50% of the rest. If you are looking at a home that is 2 million dollars, your down payment would actually be between $550K-625K which works out to be 27.5%~ 31.25%.
- CAN MY PARENTS GIFT A DOWN PAYMENT?
But…Your parents (or any immediate relative for that matter) are free to gift you a down payment. Depending on the mortgage program (ie. stated income, self employed,rental… ) a gifted down payment may not be allowed or the lender would not allow the entire down payment to be gifted.
- CAN A FRIEND OR NON-RELATIVE GIFT A DOWN PAYMENT?
Unless…you have worked out a special plan with a private lender, national lenders like the large banks will not allow friends (including close family friends) or other non-relatives gift a down payment.
- CAN I USE AN INHERITANCE FOR A DOWN PAYMENT?
Although…your mortgage qualifications will remain the same and the inheritance does not qualify as income.
- DO YOU NEED MORTGAGE INSURANCE ON LESS THAN 20% DOWN PAYMENT?
There are three mortgage insurance companies that offer mortgage insurance. CMHC, Genworth, and Canada Guaranty all offer mortgage insurance. Having mortgage insurance allows you to purchase without having 20% down on owner occupied properties. This mortgage insurance is added to your mortgage and amortized over the life of your mortgage.
- WHAT IS REQUIRED TO PROVE DOWN PAYMENT?
STATEMENTS or TRANSACTION HISTORY.
Please make sure that your money is in an account where you are able to provide history. You can not show history of cash and therefore it can not be accepted as your down payment. 90 days history of the down payment is required. If your mortgage is not insured, this number can be lower with some lenders and only 1 month or 30 days history needs to be provided. Try to keep the money in one or two accounts. Do not move the money around as any large transactions will have to be explained with proof of where the funds are coming from. Keeping your down payment in one account is the easiest way to provide history.