Purchasing a new home? Now you can borrow your down payment!
So your having a tough time saving for a down payment? This recent announcement just might make it possible for you to get the home you have always wanted.
Canada Mortgage and Housing (CMHC) has just announced that home buyers will now have a greater choice in what they can use for a down payment when purchasing a home.
Previously borrowers were required to have a minimum of 5% down payment from their own resources to purchase a home.
CMHC has now expanded the eligible down payment sources to include lender incentives and borrowed funds. Essentially you can now buy a house with no money down..
Under this announcement lenders will be able to offer Canadians a variety of mortgage products including mortgages with terms as low as six months and fixed, adjustable and capped interest rates.
Known as "Flex Down", the plan is available to eligible borrowers only. The down payment must be from a source that is arm's length to and not tied to the purchase or sale of the property, either directly or indirectly.
Permitted down payment sources include:
Borrowed Funds
This includes personal loans, lines of credit or credit cards. Payments on borrowed funds are included in your TDS (total debt service ratio) calculation.
Gifts
Gifts or grants from any party that is arm's length to the property purchase transaction.
100% Sweat Equity
From either the borrower or contributed by another party that is arm's length to the property purchase transaction.
Lender Cash Back Incentives
For CHMC Mortgage Loan Insurance purposes, recovery of any lender cash back incentive must be done through the interest rate and not through a cash back repayment provision. If there are cash back repayment provisions, these cannot be collected in higher or equal priority to the CMHC insured mortgage loan out of any mortgage loan insurance enforcement proceeds. Any costs or losses associated with such cash back recoveries are the responsibility of the lender. As with all CHMC insured mortgage loans, penalties cannot be capitalized.
Note: Borrowers also need to demonstrate the financial capacity to cover closing costs of at least 1.5% of the purchase price.