How to Buy a House Without a Mortgage?

Question

I am Canadian, but working overseas to save money for a down payment on a house I would like to buy at home in Canada for myself to start a family.

I have four rental properties that would give me the cash flow to pay my monthly mortgage payments.

Only problem I just realized is that I have to be working in Canada probably for at least 2 years in order for the bank to approve me a mortgage. I don't want to have work when I go back to Canada, and I don't want to have to buy a $250,000+ house in cash either. Help! What can I do? Thank you in advance for your help and advice.

Jon Holdman · Answer

The short answer is you don't.  If you can't afford to pay cash, you have to have some sort of financing.

I don't really know what works and doesn't work in Canada.  Here in the US, you would have several other options.

1) Straight owner financing.  Find a house where the owner will carry a note for most of the purchase price.  This is how I bought my first house many years ago.  Better if the current owner owes it free and clear, but still possible if they have a note on it.

2) Contract for deed.  In this approach, you do a contract with the seller that says you will make payments for a certain period then you get the deed.  Like a car loan where the bank keeps the title to the car until its paid off.

3) Lease/option.  You lease the place and at the same time buy an option to purchase in the future at a specific price.  You'll pay some option money, which is usually credited toward the purchase price.  Some of the rent money can be credited toward the purchase, too.

With any of these, there can be a balloon.  Say after three years, you have to either pay off the remaining amount or move out, losing whatever you paid so far.  This would work fine for you.  The first option might be the most attractive.  The owner sells to you with a owner carried note with a 30 year amortization period buy a three year balloon.  You get the house right away, and you get a deed.  After two years, you start the process to refinance.  You pay off the existing mortgage with the seller and have a new one with a bank.

Claudia Schmidt · Answer

Thanks for the post Tony. Well since I haven't lived in Canada for several years and will still not return for another 3, I am no longer a 'resident' and therefore do not have to declare personal income tax. Only once I return. But I do have an Internet company (rentals related) that is incorporated in Canada of which I do my taxes yearly. It's not profitable yet. I used to declare my overseas rental properties income via my personal taxes when I was living in Canada, but perhaps it makes more sense to declare it through my company starting now, so that by the time I return back home, I have some years of income which I could show the bank and they could grant me a mortgage via my company? Could this work? Thank you for your help!

Claudia Schmidt · Answer

Thanks for your post Hyler. Because I don't live in Canada I am not a resident and therefore do not have to pay personal income tax until I return to live there permanently. And my rental properties are outside of Canada. Therefore, I don't know how I could get a mortgage without having to work in Canada for 2 years or so I guess until I can show my income to the bank to get a mortgage. But I don't want to go back to work when I return either....

Claudia Schmidt · Answer

Thanks for your post Paul. Could you please kindly elaborate? Sorry, didn't quite understand what you meant by 'existing financing'?  Thank you.

Claudia Schmidt · Answer

Thanks for the post... Well since I haven't lived in Canada for several years and will still not return for another 3, I am no longer a 'resident' and therefore do not have to declare personal income tax. Only once I return. But I do have an Internet company (rentals related) that is incorporated in Canada of which I do my taxes yearly. It's not profitable yet. I used to declare my overseas rental properties income via my personal taxes when I was living in Canada, but perhaps it makes more sense to declare it through my company starting now, so that by the time I return back home, I have some years of income which I could show the bank and they could grant me a mortgage via my company?  Could this work? Thank you for everyone's help!

Claudia Schmidt · Answer

Thanks for your reply Jon! How would I find such a seller interested in selling to me with these different possible financing options? Thanks

Tony Tomasek · Answer

Yes it is possible.  You need to start planning now though.  See a qualified CPA to make sure you will show the income required on your tax returns.  I would also make sure that you are carrying no or extremely little other debt.  This will help you have a good debt to income ratio and thus qualify.  Good luck and happy saving!!!

Jim Pritchard · Answer

Is this really possible?

Ana Hyler · Answer

Well... you would need to pay for it somehow... if that pmt will come from your rental properties...if your taxes are well done and your books are kept right...you have a proof of income right there....that is if your rental are really cashflowing !  Otherwise....pay cash...you would have the cash and the cashflow of your rentals will build up soon. Right?

Eddie Ziv · Answer

You mentioned that you work overseas. Where do you pay your taxes? If your income is declared on you Canadian income tax, then you should be able to get mortgage. I don't see why Canadian mortgage companies would care where you income is coming from as long as it is legal and is reported to the Canadian tax authorities.

How to Buy a House Without a Mortgage?

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