Posted in I have many clients who wish to buy the home they are living in or move in to, its in mom or dad’s name or a close relative and the borrower does not have a down payment. If the home owner is willing to gift you equity in the home, it can be used as a down payment.
For example: A purchase price of $100,000 is agreed upon, a gift of equity can be 5% or more, depending on the strength of borrower’s application, will be required. The home owner/family member completes a “gift” letter, stating equity is a gift, not owed back.
$200,000 – $10,000 (5%) = $190,000 + $5,510 (CMHC) = $195,510 mortgage amount [seller receives $190,000 at closing]
Or
$200,000 – $40,000 (20%) = $160,000 mortgage amount [seller receives $160,000 at closing]
The mortgage amount is set and if CMHC insurance is required, the premium is added on. If the gift is 20% or more, making the mortgage conventional, then no insurance premium is added on. The borrower will still have to have the funds to cover the closing costs, appraisal (if required) and additional fees such as moving expenses, PST on insurance premium (if applicable), etc
Instead of your family handing you a gift of cash for down payment they hand you equity and still receive the same amount of money on closing day.
For assistance in putting this type of plan in motion, please give me a call @ 613-394-5810
