Lending in Ontario for a youngster

13 Replies

Good evening BP community, hope all is well. I have spent the past few months learning about real estate investing, I have listened to many podcasts and read quite a few books on buy and hold investing. I feel as tho my education is at the point where I have what is needed to start and I need to get my hands wet, My issue is I'm 19 have a horrible paying job and little money for a down payment. It will take my year's salary to save up 20 % down on any of today's properties. I do have good credit and a high income from my business however the business in new and has only been making solid returns for four months. I am wanting to get into my first deal for Brandon's 90-day challenge. I was wondering what you would sugest for lending? Is there such thing as FHA loans for canadians? Can I get a loan with a lower down payment in Ontario with mortgage insurance? My accountant talked to me a few weeks ago about getting financing for the down payment and another one for the complete mortgage to get infinite ROI. Is this something that anyone has tried? Would you recommend it if the deal cash flows? I just want to be prepared for when I get a killer deal I can jump on it quickly and get into the game.

@Cole Black   Your best bet is to "House Hack" into a 4-plex. The only problem is I don't know anything about Canadian Lending. Youre so young, and Im assuming you dont have a wife and kids... You can easily house hack into a 4-plex.

@Cam Jimmy yes I’m not sure if that program exists here. I do still live at my parents so if I’m not required to live there for a low down payment I will just rent it out!

@Cole Black Welcome to BP! It sounds to me that you have taken the right steps towards your journey in real estate investing - Learning is key. Do your research on getting a mortgage for first time home buyers.

In Canada, an insured mortgage provides you with down payment flexibilities — you can own your principal residence with a minimum down payment starting at 5%.

Some common sources of down payment include personal savings, RRSP withdrawal, non-repayable gift from immediate family members, sale of other property, and funds borrowed against proven assets.

The minimum down payment requirement for mortgage loan insurance depends on the purchase price of the home. For a purchase price of $500,000 or less, the minimum down payment is 5%. When the purchase price is above $500,000, the minimum down payment is 5% for the first $500,000 and 10% for the remaining portion.

You could qualify for a mortgage by having a co-signor, perhaps a parent.

@Cole Black

A small clarification on Ms. Toh's advice.  

If your personal residence is a single-family home or duplex, insured financing to an LTV of 95% (i.e. a 5% down-payment) is available. If your primary residence is a triplex or quadruplex, insured financing to an LTV of 90% (a 10% down-payment) is available.

Originally posted by @Julie Toh :

@Cole Black Welcome to BP! It sounds to me that you have taken the right steps towards your journey in real estate investing - Learning is key. Do your research on getting a mortgage for first time home buyers.

In Canada, an insured mortgage provides you with down payment flexibilities — you can own your principal residence with a minimum down payment starting at 5%.

Some common sources of down payment include personal savings, RRSP withdrawal, non-repayable gift from immediate family members, sale of other property, and funds borrowed against proven assets.

The minimum down payment requirement for mortgage loan insurance depends on the purchase price of the home. For a purchase price of $500,000 or less, the minimum down payment is 5%. When the purchase price is above $500,000, the minimum down payment is 5% for the first $500,000 and 10% for the remaining portion.

You could qualify for a mortgage by having a co-signor, perhaps a parent.

Thank you I will look into this, what are the requirements when withdrawing from your RRSP? My funds right now consist of personal savings however I may have some liquidity in my RRSP that I never thought I was able to use. I will be focusing on properties under $500,000 so that will work great. My parents would definitely co-sign if the deal made sense!

Originally posted by @Roy N. :

@Cole Black

A small clarification on Ms. Toh's advice.  

If your personal residence is a single-family home or duplex, insured financing to an LTV of 95% (i.e. a 5% down-payment) is available. If your primary residence is a triplex or quadruplex, insured financing to an LTV of 90% (a 10% down-payment) is available.

Not quite sure I understand you 100%, my primary residents is my parent's house. is this 90-95% LTV on the property I will at some point buy?

Originally posted by @Cole Black :
Originally posted by @Roy N.:

@Cole Black

A small clarification on Ms. Toh's advice.  

If your personal residence is a single-family home or duplex, insured financing to an LTV of 95% (i.e. a 5% down-payment) is available. If your primary residence is a triplex or quadruplex, insured financing to an LTV of 90% (a 10% down-payment) is available.

Not quite sure I understand you 100%, my primary residents is my parent's house. is this 90-95% LTV on the property I will at some point buy?

When you buy a residential property in which you will live, it is considered to be(come) your primary residence. As part of a longstanding plan to encourage home ownership, high-ratio financing (loan-to-value (LTV) ratios > 80%) is available on owner-occupied properties.

If you were to buy a rental property, but continue to live with mom & dad, then you would require a minimum down payment of 20%.

Originally posted by @Cole Black :

@Jonathan Hynes is there a length at which you have to live in it before you can move out and rent that apartment like with a FHA loan in the states?

Yes and no.   Theoretically, the insured high-ratio mortgage is only available to you while you reside in the property (it is a home ownership programme); if you the property is no longer your primary residence, then you should bring your equity position to 20%.   In practice, I've not heard of this happening.  

When the term of your financing is up (3yrs or 5yrs), if you are not living in the property and your lender does any follow-on diligence (or you change lenders), you may only be offered conventional financing (max 80% LTV). Keep in mind that with five years of paying down your financing, coupled with improvement you've made to the property (forced appreciation) and any market appreciation your equity position may well be greater than 20%.

Another thing to keep in-mind is that you may hold high-ratio insured financing on one {primary residence} property at a time. If you were to move out of this first property and attempt to buy a second property using insured financing, you may well be asked to bring the financing on the first property to an LTV of 80% (or less).

@Cole Black   If you plan on living in it, you can also look at the new government program where they will lend you money for the house.  There is a cap on it and you have to pay it back when you sell the property.  The link also has info on using RRSPs. link here

I'm familiar with BC and AB and the rules differ for those two provinces, but you will want to check for ON if there are any purchase taxes like there are in BC.

Think about living in the property as you may find most of your expenses are covered by your tenants.