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Let’s face it, saving up for a down payment on a home is difficult, especially for first time home buyers! Housing prices have increased which makes the down payment requirement even more challenging. However, there are some solutions for the right niche. Let’s refer to it as Flex Down Payment.

Typical mortgage rules stipulate that mortgagors must come up with their own down payment. Lenders like this because it’s the “skin in the game” that people don’t want to lose. For some lucky people, they may also receive a non-refundable gift from an immediate family member. I call the latter, the Bank of Mom and Dad.

Lending Requirements

Although all the insurers offer a program on it, only a handful of lenders will offer this program. Typically, the lenders have their own name such as a Flex Down Mortgage. Here are some key things to know about the program and meeting the insurer’s guidelines:

  • 90.01-95% Loan to Value (LTV) - this is the ratio of the mortgage loan size to the value of the property
  • $1,000,000 maximum property value
  • Minimum 650 beacon, but probably more like 680
  • Maximum 25 year amortization.
  • Borrowed funds must be added to liabilities and the total debt service ratio. This means that the applicant(s) must have sufficient room in their ratios to absorb the borrowing costs against their ratios.
  • No previous bankruptcies
  • Not applicable to New to Canada, Stated Income, Second or Vacation Homes, investment properties. Basically, the target is first time buyers – owner occupied.
  • Insurance premium is 0.15% extra (capitalized and annualized on mortgage balance). On a $500,000 mortgage, the extra premium is $750. Amortizing this at 3% over 25 years means a higher payment of $3.55 per month.

What can I borrow from?

It depends on the lender but typically they are:

  1. Personal loans
  2. Unsecured Lines of Credit
  3. Credit cards

Bottom line

As long as the borrowing doesn’t saddle the applicant into a situation that is unsustainable, with high interest credit card payments then it’s a great program to start building equity right away. Call me to discuss if this is right for you.