Real Estate

Down payment for second home 5%

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  • Sep 20th, 2020 9:09 am
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Sep 17, 2020
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Down payment for second home 5%

I have one home and now I wanted to buy 2nd home preconstruction one, we know that For 2nd property Need 20% down payment but, I can afford only 5% down. Please give me some information about this. I wanted to buy my 2nd property for 5% down.
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Jun 3, 2019
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Cheksu wrote: I have one home and now I wanted to buy 2nd home preconstruction one, we know that For 2nd property Need 20% down payment but, I can afford only 5% down. Please give me some information about this. I wanted to buy my 2nd property for 5% down.
Hi Cheksu, first you need to pay the deposit structure as per the builder which in most cases it 20% or more over a span of a several months. Even if the builder had a very buyer friendly structure where they only required 5%, you wouldn't be able to find a lender to lend to you as this would be your second property, and they would automatically deem it to be an investment. They only way around it would be to get a mortgage for 80% LTV and then a second mortgage (most likely a private lender) to loan you the remaining 15%.
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Feb 22, 2011
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You do not need 20% down for a second property if you will live in it, if it will be a primary residence you only need 5% down. If you change your mind after and end up renting it out then that is fine as well.
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Aug 20, 2020
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mazerbeaner wrote: You do not need 20% down for a second property if you will live in it, if it will be a primary residence you only need 5% down. If you change your mind after and end up renting it out then that is fine as well.
@Cheksu Do consult a knowledgeable accountant before you go down this route. Plus do you have borrowing room to own 2 properties without having any rental income?
Neil Joseph
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Sep 2, 2009
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Cheksu wrote: I have one home and now I wanted to buy 2nd home preconstruction one, we know that For 2nd property Need 20% down payment but, I can afford only 5% down. Please give me some information about this. I wanted to buy my 2nd property for 5% down.
Also question about why you can only "afford" 5% if you want a second home... plan on selling the first?
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Aug 23, 2011
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VANCOUVER
If it's a preconstruction, check with the developer to see what deposits they require. 5% likely isn't enough. It's usually a 10/5/5 deposit structure (in Vancouver at least).
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mazerbeaner wrote: You do not need 20% down for a second property if you will live in it, if it will be a primary residence you only need 5% down. If you change your mind after and end up renting it out then that is fine as well.
Being both a real estate and a mortgage agent I can say that lenders are aware of borrowers playing the 'I'm going to live in the second home as my principle residence' game. I'm not saying that Cheksu is looking to deceive a lender, he may very well intend to move into the precon unit when it is built, just that lenders hear that all the time. Because of COVID-19, lenders at the moment (at least in the brokerage space) are very leery of approving 95% LTV applications for a second home. And if Cheksu's intent was to rent the second property out all along, technically that constitutes mortgage fraud (principle home mortgages are given better rates due to lower risk for underwriters).
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Cheksu wrote: I have one home and now I wanted to buy 2nd home preconstruction one, we know that For 2nd property Need 20% down payment but, I can afford only 5% down. Please give me some information about this. I wanted to buy my 2nd property for 5% down.
Even if you somehow get away with getting a 95% LTV as an option...I'm not aware of any developer who takes less than 10% for Pre-Con, and most of them take 20%. Second, if you can "only afford" 5% down, something tells me your income is not there to support the mortgage on a second home (of course I'm not a mortgage professional, but definitely have experience, and good with numbers as a CPA, CA Winking Face). And in this case, unlike with the >20% down scenario, there usually isn't "flexibility" from banks/brokers to bend the qualification criteria when CMHC/Genworth is involved.
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Feb 22, 2011
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NeilJoseph wrote: @Cheksu Do consult a knowledgeable accountant before you go down this route. Plus do you have borrowing room to own 2 properties without having any rental income?
trebmember wrote: Being both a real estate and a mortgage agent I can say that lenders are aware of borrowers playing the 'I'm going to live in the second home as my principle residence' game. I'm not saying that Cheksu is looking to deceive a lender, he may very well intend to move into the precon unit when it is built, just that lenders hear that all the time. Because of COVID-19, lenders at the moment (at least in the brokerage space) are very leery of approving 95% LTV applications for a second home. And if Cheksu's intent was to rent the second property out all along, technically that constitutes mortgage fraud (principle home mortgages are given better rates due to lower risk for underwriters).
It's not a game, you can buy the new home as a primary residence and move in then rent it out later and buy another place. It's a perfectly legal and an easy way to get into real estate investing. Especially if you are high income and don't want to wait years to save up large down payments for multiple properties.
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mazerbeaner wrote: It's not a game, you can buy the new home as a primary residence and move in then rent it out later and buy another place. It's a perfectly legal and an easy way to get into real estate investing. Especially if you are high income and don't want to wait years to save up large down payments for multiple properties.
I know there are a few real estate investing courses that teach this way of building a portfolio of properties (Scott McGillivray's Kespire is one). Acquiring properties by moving into the next home and continue the cycle is perfectly legal. What I'm saying is that if you tell the lender that the purchase will be the primary residence, when in fact it isn't just to get a lower rate and skirt down payment rules, then that is occupancy fraud.

https://www.investopedia.com/terms/o/occupancyfraud.asp
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mazerbeaner wrote: You do not need 20% down for a second property if you will live in it, if it will be a primary residence you only need 5% down. If you change your mind after and end up renting it out then that is fine as well.
In general, can't you always lie about this? Oops, we decided not to move to New house and forgot to tell you lender.
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Oct 13, 2014
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trebmember wrote: I know there are a few real estate investing courses that teach this way of building a portfolio of properties (Scott McGillivray's Kespire is one). Acquiring properties by moving into the next home and continue the cycle is perfectly legal. What I'm saying is that if you tell the lender that the purchase will be the primary residence, when in fact it isn't just to get a lower rate and skirt down payment rules, then that is occupancy fraud.

https://www.investopedia.com/terms/o/occupancyfraud.asp
Damn, I hate when people do this. Please give us the source of your information applicable in Canada. I have a good idea, but it is your statement you tell the others. The term you are using is AFAIK foreign to most of us here.
“Before one can have a Clue they must first accumulate 10 Inklings. That said, all it takes is one bad post and you erase all Inklings & Clues accumulated'"
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rcmpvet wrote: Damn, I hate when people do this. Please give us the source of your information applicable in Canada. I have a good idea, but it is your statement you tell the others. The term you are using is AFAIK foreign to most of us here.
Are you talking about occupancy fraud (which is one form of mortgage fraud)? Here it is spelled out by CMHC and Genworth, two of Canada's mortgage insurance providers

CMHC:
https://www.cmhc-schl.gc.ca/en/buying/f ... gage-fraud
Mortgage fraud includes:
  • misstating your work position, your income or the length of time you’ve held your job
  • stating you’re a full-time salaried employee if you are not
  • misrepresenting the amount or source of your down payment
  • claiming a rented property is owner-occupied
  • not disclosing other mortgages or debts
  • omitting information to inflate the value of the property
  • adding purchasers’ names on the mortgage application who will do not intend to take responsibility for the mortgage
  • acting as or using a “straw buyer” – a person whose good credit is used to get a mortgage for someone else

Genworth:
https://www.genworth.ca/en/lenders/type ... fraud.aspx

Occupancy Fraud
This occurs when the mortgage application states owner occupancy of the property as a primary residence when in fact the intended use of the property is for an investment (rental).
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trebmember wrote: Are you talking about occupancy fraud (which is one form of mortgage fraud)? Here it is spelled out by CMHC and Genworth, two of Canada's mortgage insurance providers

CMHC:
https://www.cmhc-schl.gc.ca/en/buying/f ... gage-fraud
Mortgage fraud includes:
  • misstating your work position, your income or the length of time you’ve held your job
  • stating you’re a full-time salaried employee if you are not
  • misrepresenting the amount or source of your down payment
  • claiming a rented property is owner-occupied
  • not disclosing other mortgages or debts
  • omitting information to inflate the value of the property
  • adding purchasers’ names on the mortgage application who will do not intend to take responsibility for the mortgage
  • acting as or using a “straw buyer” – a person whose good credit is used to get a mortgage for someone else

Genworth:
https://www.genworth.ca/en/lenders/type ... fraud.aspx

Occupancy Fraud
This occurs when the mortgage application states owner occupancy of the property as a primary residence when in fact the intended use of the property is for an investment (rental).
Thank you for that information, it is much appreciated.

To be clear to all our readers - What TREBMEMBER originally stated in Post #11 is essentially correct. The issue I had was in providing a link that has no bearing in Canada. We would undoubtedly have a number of you going into Google and trying to find a legal reference to "occupancy fraud" in Canada and would not be able to find such a legislated/legal reference. TREBMEMBER's second link to a law firm in Canada just documents a referral by that firm to a specific phrase, no legal reference. The CMHC link documents the various ways a fraud can be committed without naming specific legislation, however it is a document by a corporation that is named and referenced in Federal Legislation - next best thing for specific information.

For everyone's information the specific legislation is found within our own Criminal Code, Section 362(1) - here is the link - https://www.canlii.org/en/ca/laws/stat/ ... 362_smooth
I will not cut and paste the section due to its length and there may be a number of sub-sections that can be applied.

Again - Thank you TREBMEMBER for the additional information.
“Before one can have a Clue they must first accumulate 10 Inklings. That said, all it takes is one bad post and you erase all Inklings & Clues accumulated'"

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