Every deal needs a down payment in one form or another! Here are some alternative sources for a down payment that both lenders and mortgage insurers find acceptable.
Let’s review the list of acceptable down payment sources in the hopes that a deal you thought was dead can be resurrected.
This is the most common form of down payment. The Buyer must show proof of funds for three months prior to the close date or an accumulation of those funds from a verifiable source. Be cautious when keeping your down payment in a form that can fluctuate in value (i.e. stocks, mutual funds etc,) prior to the close date. Also, don’t forget about the time needed to process and settle the sale of some of those assets either.
Gifts from immediate family members:
These are acceptable if it's from an immediate family member and if the gift is non-repayable. Expect to provide a signed declaration from the providing family member acknowledging the gift and three months proof of ownership.
Gifts or grants from an arm’s length source:
In this scenario the key is that funds must be from an arm’s length source that makes sense. An example would include a relocation package from an individual’s employer while a gift from a friend may not be acceptable. These types of gifts are assessed on a case by case basis.
Home buyers plan
This is a program from the federal government allowing a buyer to withdraw a maximum of $25,000 from their RRSP on tax free basis. In the year following the withdrawal, the buyer must start to repay the RRSP in equal yearly installments of 1/15 of the amount withdrawn. Failure to make the installment results in the amount being included in income for that year.
Yes you can use a cash advance from your credit card, money from a line of credit or funds from a personal loan as part of your down payment. Payments associated with this source must be included in the debt ratio calculations on the mortgage application. Is this a preferred manner of down payment? No but for some of your Buyers it may work.
These are still available but from a very limited number of lenders. The underwriting is stringent and the Buyer must still have closing costs of 1.5% in their possession. Good income and excellent credit are pre-requisites. Again, not a preferred down payment source but for some buyers it may work.
Government homeownership assistance to low and moderate income households
This program falls under The Investment in Affordable Housing Initiative of the Federal and Provincial Governments and the funding commitment for 2014 - 2019 is slated for $801 million dollars. The funds distributed to local governments can be used for a number of different purposes including down payment assistance. For home buyers that qualify, the assistance comes in the form of a forgivable grant for the down payment if certain criteria are met. Your best source of information on availability by region is to contact the regional administrators of the programs. And finally here are Peel Regions's requirements to give you an idea of how their program works. Expect some differences between what is offered by the participating Cities and Regions. Note that these are typically provided on a first come first serve basis and given the lack of news about the program few people seem to know about it.
If you have questions on any of these down payment options please feel free to contact me directly.