Rental Property Investor · Niagara · Member since 2015 · 22 posts · 2 votes
My partner and I came across a great property the other day however, we're tapped out capital wise. We thought Vendor Take Back might be a good way to be able to move forward on the property, however, we were told that back in 2008 in the province of Ontario, the mortgage rules tightened on this and VTB can only be used for commercial properties and not Single Family Homes.
Any truth to this? Anyone doing this in Ontario?
My partner and I have good credit but lack the down payment which is 20% which is a large chunk of change. Other than JV - any other creative options people might want to suggest we continue? We're eager to work with the seller as he has 4 other properties and is looking to get out of the rental business which could be quite beneficial to us, and to him, after all, positioning VTB is really about helping solve a problem.
Investor · Kitchener-Waterloo, Ontario · Member since 2008 · 1k+ posts · 1k+ votes
10y
@Matt Geerts I do zero-down deals, but I don't use VTBs. I purchase by instalment sale to take over the existing mortgage from a seller who doesn't have enough equity to sell conventionally.
As an example, I came across a FSBO in London who had owned his 3/2 townhouse for only 2 months. He bought it with his girlfriend but before moving in they broke up and he lost his job. Now he sat there with a property that he owed 98.6% (put 5% down, but had 3.6% mortgage insurance tagged on). So he couldn't sell it on the MLS without coming out of pocket for the commission unless by some miracle his agent managed to sell it for 5% more than it was worth.
Come to think of it...you might actually be able to sell a house in Toronto for 5% more than you paid 2 months ago :D
Anyway, I bought it on an instalment sale for the mortgage balance at the time of closing (4 years and 10 months away) and paid his PITI directly to the payees. He was ecstatic to say the least! As was I.
Are they hard to find? I guess it depends on your perspective. Here in KWC I find that they make up 1-2% of the market so right now that's about 22 owners that are trying desperately to get more than the house is worth on the MLS. That's far more than I can buy, but requires a lot of digging through ~1500 homes. I've also never been able to buy this way through a realtor, so I have to wait for the listing to expire.
Real Estate Educator, Mentor, Investor · Toronto, Ontario · Member since 2015 · 206 posts · 86 votes
10y
Hi @Jay Shaw, as far as I know, that's not true, but it depends on what the lender in first position allows behind its charge. What you might have heard about is that you cannot buy without putting any money down - that is true from what I know. So if you have a conventional mortgage for 80% LTV ratio, and a seller willing to do a 20% VTB, that would not be allowed.
Rental Property Investor · Niagara · Member since 2015 · 22 posts · 2 votes
10y
Thanks @Claude Boiron. I'm not sure I follow so perhaps help walk me through this. I understand the latter part in that if we had a conventional mortgage of 80% LTV we couldn't have a seller willing to do 20% VTB as the first condition on any first charge mortgage is that there can't be any secondary financing on the house. So could we in theory, do 100% financing on VTB? Or would we have to do something along the lines of 80% Conventional, 10% us, 10% VTB?
Real Estate Educator, Mentor, Investor · Toronto, Ontario · Member since 2015 · 206 posts · 86 votes
10y
@Jay ShawI can connect you with a few great mortgage brokers who will have the definitive answers, but my understanding is that you cannot do the 100% financing, even if you combine conventional with VTB. However, if the first lender of 80% agrees to have a 10% VTB behind its position, and you have the 10% down payment, then it could work.
Investor · St. Thomas, Ontario · Member since 2015 · 692 posts · 312 votes
10y
I am bringing this topic up again to see if anybody has any concrete information on this.
I am trying to find ANY way to get the 20% in a form other than cash. Unsecured LOC, private unsecured loan, private second mortgage, vtb (which is basically a private second mortgage, right?).
Can lending on ARV work? Bank gives me 80%, vendor gives me 20%, I have 10% in repair money in unsecured LOC and plan to refi on ARV in four months?
Has anybody bought a house in Ontario or even Canada without any money down, non-owner-occupied, since 2011?
@Claude Boiron is correct that the lender in first position makes {most of} the rules. There are some regulatory guidelines which licensed lenders and brokers must abide in the residential lending space:
One of those is that the minimum down payment size 5% w/ insurance for an owner occupied SFH or duplex; 10% w/ insurance for an owner occupied triplex or quadriplex; 20% for any non-owner occupied property or an owner-occupied property w/o mortgage insurance; and
The second is that no portion of your downpayment can be borrowed. The exceptions (which are not really exceptions because you are technically borrowing from yourself) are pulling equity from a real property you own using a secured LoC or borrowing from one of your registered accounts under a program such as that for first-time homeowners.
The only way you might be able to swing 100% financing is if the Vendor carries the entire balance and is willing to sell you the property w/o a downpayment. Unless the Vendor is your Mom, this is not a probable scenario.
Investor · St. Thomas, Ontario · Member since 2015 · 692 posts · 312 votes
10y
@Roy N.
Am I picking nits if I point out that you said "licensed" lenders? Does this apply to Joe millionaire lending privately? Can my hypothetical second cousin's friend loan at 100% of purchase price? I am trying to differentiate regulation from policy from preference.
Perhaps when I feel it is time to get the next one, I should drain my unsecured LOC into my HELOC to make room then downpay from m the HELOC.
Also, can a bank use appraised value to determine the %'s?
Not picking nits. A Vendor selling her house or the bank-of-mom-and-dad, unless they are in the business of lending, do not need to hold a licence to lend to you. Regulations here in Canada have yet to tighten-up quite as tightly as in the U.S.A. w/r to lending.
If Joe Millionaire were selling you a property and elected to carry a mortgage for 100% of the sale price, he could so do. However, unless Joe Millionaire earned his wealth vs having it handed to him, he's unlikely to underwrite such a risky loan unless he knows you very well (bank of mom-and-dad) or you have a proven record.
Not necessarily. There are lots you can do. Try to maximize the performance of your existing properties; add ancillary income streams to your business; build your network; become adept at finding and analysing off-market deals. If you find a great deal, with lots of meat on the bones, take it to your network to marry it with funding ... as the sponsor/operator, you might come-away with only a small piece of pie (maybe only 10-20%), but you will be gaining experience and building credibility,
Investor · St. Thomas, Ontario · Member since 2015 · 692 posts · 312 votes
10y
So, say I find a place I can pick up at 65%ARV. I find a partner to fund the 20% (of 65%, so 13%ARV) down, and I put 15% ARV into repairing it via my unsecured LOC.
Now we are at 80% ARV into it and we can get out cash out.
I want to keep this house and tenant it.
Can you suggest the mechanics of an equitable deal to buy out the partner? I'd PREFER to just have them on board for interest*time+points, which seems fair, but I am not allowed to do that; they have to be on ownership or else I am buying with borrowed money.
Investor · Kitchener-Waterloo, Ontario · Member since 2008 · 1k+ posts · 1k+ votes
10y
@Matt Geerts The simplest would be to have a private lender or partner come in with enough cash to buy the property outright. Then you reno it, rent it, and refi to pay them out. This is pretty much all hard money lenders do. Since you plan on keeping the property as a rental you don't have to worry as much about the cost of borrowing eating into your profits as someone who's going to flip the property would.
If the seller owns the property free and clear you could do the same thing, but partnering with them instead. Buy the house with the seller giving you a short-term loan for the entire purchase price. Then again reno it, rent it, and refi to pay them out.
If the seller has a mortgage you can buy the house subject to that existing loan too.
Investor · St. Thomas, Ontario · Member since 2015 · 692 posts · 312 votes
10y
Interesting, Doug. So you are saying 100% financing is not unachievable from a lender?
VTB at 100% on a short loan seems reasonable to me (inherited house, for example) but Roy suggests that is highly unlikely. Ever done it?
I just looked at Canadian Western SDRRSP mortgage rules and they won't sign for more than 90% LTV either, but that looks like appraised value, not purchase price, so it may work with a seller motivated to sell at 90% appraised.
Interesting, Doug. So you are saying 100% financing is not unachievable from a lender?
VTB at 100% on a short loan seems reasonable to me (inherited house, for example) but Roy suggests that is highly unlikely. Ever done it?
I just looked at Canadian Western SDRRSP mortgage rules and they won't sign for more than 90% LTV either, but that looks like appraised value, not purchase price, so it may work with a seller motivated to sell at 90% appraised.
Matt:
Your mixing two different things here.
When I suggested a Vendor as unlikely to provide 100% financing it was grounded in it being a risky business practice for the Vendor (why would I take on 100% of the financing risk with someone I do not know, or who does not have a demonstrable record). There are ways to mitigate that risk or transfer some of it to the purchaser (i.e. an instalment sale where title does not change hands until the sale is {near} complete); Doug pointed out some other possibilities.
The 90% LTV restriction you saw on lending arms-length mortgages at Canada Western has to do with regulations on lending from a registered account (and, let's not forge that Canada West is a licensed lender/servicer/custodian).
Investor · St. Thomas, Ontario · Member since 2015 · 692 posts · 312 votes
10y
Thanks for the info, guys.
I'd still love to hear from someone doing any zero-down, just to know this wild goose exists.
Roy, I'm not entirely convinced that 100% vtb is all that risky. Say I throw them their paperwork fees at the start, what exactly are they risking? Ending up with their house back?
I am picturing an inherited house that needs work to be retail ready owned by a fifty-something couple who is otherwise comfortable and thinking about retirement. I'm offering them an income stream and hands-off sale.
Time for me to hit he pavement with this, or am I missing some risk angle still?
Real Estate Agent · Kitchener-Waterloo-Cambridge, Ontario · Member since 2013 · 408 posts · 90 votes
10y
I did a 93% LTV vendor take back I thought that was pretty high LTV ratio, I also met and investor in London who offered out about 95%-97% LTV but never have I seen 100%. I don't think it would make sense for the vendor unless it was in a very slow market and they had no immediate need for the money.
Investor · St. Thomas, Ontario · Member since 2015 · 692 posts · 312 votes
10y
Thanks Sam. 3% down is sounding irrelevantly close to 0% to me. A few grand is something I can scrape together.
Is a trust company necessary for TFSA funds like it is for RRSP funds? If not, then perhaps I can still find a wealthy person to mortgage at 100%, offer them points and high interest.
The entire point of this is just to get in the door to improve the property enough to get conventional mortgage.
Investor · Kitchener-Waterloo, Ontario · Member since 2008 · 1k+ posts · 1k+ votes
10y
@Matt Geerts I do zero-down deals, but I don't use VTBs. I purchase by instalment sale to take over the existing mortgage from a seller who doesn't have enough equity to sell conventionally.
As an example, I came across a FSBO in London who had owned his 3/2 townhouse for only 2 months. He bought it with his girlfriend but before moving in they broke up and he lost his job. Now he sat there with a property that he owed 98.6% (put 5% down, but had 3.6% mortgage insurance tagged on). So he couldn't sell it on the MLS without coming out of pocket for the commission unless by some miracle his agent managed to sell it for 5% more than it was worth.
Come to think of it...you might actually be able to sell a house in Toronto for 5% more than you paid 2 months ago :D
Anyway, I bought it on an instalment sale for the mortgage balance at the time of closing (4 years and 10 months away) and paid his PITI directly to the payees. He was ecstatic to say the least! As was I.
Are they hard to find? I guess it depends on your perspective. Here in KWC I find that they make up 1-2% of the market so right now that's about 22 owners that are trying desperately to get more than the house is worth on the MLS. That's far more than I can buy, but requires a lot of digging through ~1500 homes. I've also never been able to buy this way through a realtor, so I have to wait for the listing to expire.
Roy, I'm not entirely convinced that 100% vtb is all that risky. Say I throw them their paperwork fees at the start, what exactly are they risking? Ending up with their house back?
Yes, they get their house back if you default, but that costs time and money to perfect.
Roy, I'm not entirely convinced that 100% vtb is all that risky. Say I throw them their paperwork fees at the start, what exactly are they risking? Ending up with their house back?
Yes, they get their house back if you default, but that costs time and money to perfect.
Sounds like a steal of a deal for me. They get 8-10% for a year, upfront costs paid by me, then a slim chance of having to jump a couple hoops to get it back if I fail to pay.
If someone came to me with a deal that is as solid as I'd feel comfortable taking to someone else, I'd jump on that.
Roy, I'm not entirely convinced that 100% vtb is all that risky. Say I throw them their paperwork fees at the start, what exactly are they risking? Ending up with their house back?
Yes, they get their house back if you default, but that costs time and money to perfect.
Sounds like a steal of a deal for me. They get 8-10% for a year, upfront costs paid by me, then a slim chance of having to jump a couple hoops to get it back if I fail to pay.
If someone came to me with a deal that is as solid as I'd feel comfortable taking to someone else, I'd jump on that.
Only if they are confident you will perform.
We look to use Vendor financing whenever the possibility presents, but despite an established track record, we are only successful one offer in five (or less). The less sophisticated the Vendor, the bigger the education process and the less likely they are to accept the proposition - despite the fact they will see more in their pocket overall.