Jermaine Hinds, a mortgage broker at Matrix Mortgage Global, who shared tips for home buyers and real estate investors in Canada from making grave investment mistakes, is now unpacking another frequently asked topic about down payment sources. In this news, Jermaine reveals all the down payment sources for both home buyers and real estate investors.
Keep reading to learn his answer to the most contentious question, is it possible to buy a property without any down payment? These nuggets of information are applicable to readers Canada-wide, not just in Ontario.
Is it possible to buy a property without any down payment?
Buying a property without any down payment is a contributing factor to speculative and inflated pricing in real estate properties that hurt affordability in the long run. Such a program (which doesn’t exist in Canada) is disjointed from reality. It is NOT possible to buy a property without any down payment.
Pro tip: Ask your mortgage broker to consider adding co-signer(s), gifted down payment, and government grants.
What are the different sources of down payment eligible in Canada?
There are a number of down payment sources that are recognized by lenders in Canada.
The first one being the most conventional source, which is personal savings. This type of down payment source could come from overseas personal savings or money that are already in Canadian bank accounts.
Another down payment source is for Canadians who have accumulated their retirement savings in RRSP (Registered Retirement Savings Plan) accounts. Buyers are eligible to tap into their RRSP savings for buying a home through the Canada Home Buyer’s Plan program.
What’s very important in both down payment sources is documentation to trace the history of the funds. Bank statements to show the money has been in your account for more than 90 days.
What are the other down payment sources?
For those who have used up their own resources for a down payment, mortgage lenders allow borrowers to receive gifted down payments from their family members.
The most common donors are their parents, siblings, and grandparents, or guardians.
Non-family members can also give money as a down payment, but there are fewer lenders who allow this.
A gift letter from each donor is required to prove that the money is a gift, instead of a loan.
Is it possible to borrow a loan for a down payment?
Yes, it is possible.
There are limited lenders who allow borrowed down payment to qualify for a mortgage loan, but it is possible.
Keep in mind that those who borrow a loan and use it as a down payment are responsible for making payments to the original loan and the mortgage loan. They are carrying two debt burdens. This is why not many people can qualify this way since not many people have the income to afford this, and the lenders continue to limit the acceptable debt-to-income ratio.
Does it matter if the borrowed fund is secured vs unsecured loan?
From the qualification point of view, it does not matter. Essentially, the borrower needs to be able to carry the borrowed loan and the mortgage loan until maturity and pass the qualification criteria from the lenders.
But from an affordability point of view, it’s a big difference between acquiring funds from secured vs. unsecured loans.
Unsecured loans are almost always higher than secured loans, for the main reason that the lenders do not have any collateral when they lend you money through unsecured loans.
Higher risk, higher interest rates, which mean higher borrowing costs to the borrowers.
What about cold hard cash as a source of down payment?
It depends, and it comes back to common lending sense.
Lenders will want to see documentation to trace and prove the source of the down payment.
Documents like receipts, invoices, bank statements.
Cold hard cash without traceability to the source of funds and its history is not acceptable.
About Jermaine Hinds, Mortgage Broker:
Mr. Jermaine Hinds is a mortgage broker in Scarborough with years of experience in the industry. His insight comes from his many years as an agent and lender, which gives him a broad network that offers clients more than 100 different lending partners who are ready to offer various mortgage solutions, including home equity loans, bridge loans, and other specialized mortgages products. Mr. Hinds has two children and one loving wife with whom he spends most of his time when not working or spending time at the gym! His mortgage license is powered by Matrix Mortgage Global (Brokerage Lic. #11108). Those who would like more information about this topic, please call Jermaine Hinds at (647) 998-2767 or Jermaine@mmgb.ca
About Matrix Mortgage Global:
Matrix Mortgage Global is a Toronto mortgage brokerage that has been awarded 4X Broker Of The Year in 2018, 2019, 2020, and 2021. The company is led by the Chief Executive Officer, Mr. Shawn Allen who smashed the $380M mark in mortgage origination amount during the Great Financial Crisis. Mr. Allen is an international speaker and masterclass host for mortgage brokers in Canada and Australia.
