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.
Investor · St. Thomas, Ontario · Member since 2015 · 692 posts · 312 votes
10y
@Samuel Sedore yes, that's the idea. This is the first time I've ever understood all these podcost guests saying "solve their problem".
Now, the question is, how do I market to people going into nursing homes or whose parents are dying without looking like an "ambulance chaser" (colloquialism for a sleazeball lawyer that goes to hospitals to convince people to sue for their injuries), haha.
Real Estate Agent · Kitchener-Waterloo-Cambridge, Ontario · Member since 2013 · 408 posts · 90 votes
10y
There is no "textbook" way to achieve this. I would (and do) look on Kijiji and similar sites, but kijiji has a huge market share. Look for people asking to much for their property or selling a property in less than ideal shape, they need to have significant equity for a VTB, specifically with low LTV.
@Doug P. strategy would work also if you find people without much equity.
Specialist · Toronto, Ontario · Member since 2016 · 564 posts · 425 votes
10y
@Matt Geerts It is possible to use an unsecured LOC for the balance of the downpayment.
Lenders do not let you use a LOC for the downpayment on a property. However, any funds in your account for 90 days (I guess you need to show them funds in your account going back 3 months of statements, without a transfer from the LOC showing up), they won't look at where those funds came from before. (This is what I have seen, it is possible a particular lender decides they want to see more, speak to a mortgage broker).
The problem here is that you pay interest on the downpayment amount for at least 90 days before applying for the mortgage, so there is a cost to it.
However, using this, the best strategy would be:
75% LTV from a b-lender.
15% VTB from seller.
10% Downpayment from the LOC.
Plus a little extra for closing costs.
Again, I would verify with an experienced mortgage broker that this can be done.
Investor · St. Thomas, Ontario · Member since 2015 · 692 posts · 312 votes
10y
Thanks Sam.
Luc, that is one strategy that I have in my pocket. My banker has implied that I can do it with 31 days, not 90, so it is quite attractive. This works better for something cheap to add value, since I'd be tapped out fully at that point.
For now, pinching pennies and trying to find partners and investors..
Ottawa, Ontario · Member since 2016 · 19 posts · 4 votes
10y
@Matt Geerts Love your posts, they are so entertaining! Does you brain ever take a rest, you have amazing ideas. I'm just starting out, and I have to remember to look back at some of your questions, once I'm ready.
If your banker is telling you they would consider cash in your account to be "seasoned" after 31 days, s/he is also telling you their diligence is a little light or they are willing to "not notice" certain things in the interests of underwriting a mortgage.
If the LoC is longstanding (i.e. the 90-days Luc mentioned above) then it will be factored into your credit worthiness and DTI and still have an impact on your ability to borrow. If you are opening the LoC shortly before - or in tandem with - your mortgage it may not register on your credit history before the mortgage is awarded ... though these days such things are automated and near real-time, so there will probably be very little lag.
Regardless, when you read the fine print of your financing application and/or the mortgage documents themselves there will undoubtedly be included a declaration where you attest the downpayment does not comprise borrowed funds. In practice, your lender may allow this to slide by, pedantically it becomes mortgage fraud when you sign the declaration. Just always be cognizant they have the ability to hang-you out to dry it they so choose.
... at the very least, you might consider holding the LoC with a different bank/credit union than where you will be placing the mortgage ;-)
Thanks for that note. I have noticed a few times along my real estate journey where people let the tight rules of their particular business slide a little.
Really, if I want to play it straight, then holding 30k at 3% for 3 months ($225) is a pretty small cost of entry compared to not buying a property for three more years while I bank up 30k in real cash. This is especially true if I can get that LOC money back out in a refi three months later. It will, of course, impact my credit and my TDC, but both of those numbers are stellar and can handle a little temporary waning.