Real Estate

Landlord wants to loan me money for downpayment to buy his unit

  • Last Updated:
  • May 23rd, 2019 3:52 pm
[OP]
Member
Dec 20, 2005
489 posts
37 upvotes

Landlord wants to loan me money for downpayment to buy his unit

I'm rending a condo downtown which I really like and while discussing the possibility of buying it with the landlord, he said he could sell it to me at a good price and even loan me the money for the downpayment if I didn't have it. Is that something that would be advisable to do? I'm just not sure how it would work.
18 replies
Deal Expert
User avatar
Nov 15, 2004
16627 posts
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Toronto
How do you aim to negotiate with someone you owe money to over the price of the unit? Especially when you most likely won't be disclosing the off-the-books loan on your mortgage application like you're supposed to and he can **** you for mortgage fraud at any time?
Could HAVE, not could OF. What does 'could of' even mean?
Deal Fanatic
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Mar 23, 2008
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Edmonton
My first question I'd try to answer is "Why is he pushing it so hard? Why does he want out so bad?" Does he know that there's a special assessment coming up soon? Is he going broke trying to carry the cost of the property based on how much rent you're paying?

You could talk to him about price (keeping in mind he'd be saving realtor commissions since it wouldn't get listed), and even how the downpayment loan would work. But I would proceed carefully, and get input from a number of people you trust before going through with it. You'll want to do some research on condo prices in your area (or even in your building, if you can), and get an idea of what kind of mortgage you can afford.

C
Deal Addict
Mar 27, 2004
3079 posts
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Toronto
mcbg1 wrote:
May 15th, 2019 4:35 pm
I'm rending a condo downtown which I really like and while discussing the possibility of buying it with the landlord, he said he could sell it to me at a good price and even loan me the money for the downpayment if I didn't have it. Is that something that would be advisable to do? I'm just not sure how it would work.
VTB.. nothing wrong with it.
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[OP]
Member
Dec 20, 2005
489 posts
37 upvotes
We have already agreed on a price which is pretty good given the building and the location. He's only open to selling it because he likes me and he doesn't really need it. He's almost retired with a big family, lives out of town. He won't move back in to a 450 square feet apartment. There is nothing wrong with the unit or the building. I've lived here for a year and a half.

I never thought I could afford to buy a condo downtown (Ottawa) but this seems like a good opportunity and the value will go up with the LRT station being a block away.

I can afford the mortgage but I basically have no money saved up for the downpayment. We would disclose the loan on my mortgage application.
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Mar 23, 2008
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mcbg1 wrote:
May 15th, 2019 5:41 pm
We have already agreed on a price which is pretty good given the building and the location. He's only open to selling it because he likes me and he doesn't really need it. He's almost retired with a big family, lives out of town. He won't move back in to a 450 square feet apartment. There is nothing wrong with the unit or the building. I've lived here for a year and a half.

I never thought I could afford to buy a condo downtown (Ottawa) but this seems like a good opportunity and the value will go up with the LRT station being a block away.

I can afford the mortgage but I basically have no money saved up for the downpayment. We would disclose the loan on my mortgage application.
It sounds like you’ve done a pretty good job of vetting it out already. But when you checked to see if you can “afford” the mortgage, did you include the down payment loan repayment in your calculations?

Your next step might be sitting down with a mortgage broker and getting a firm grasp on the numbers.

There’s nothing inherently wrong with doing what you’re talking about doing. And it sounds like from what little we know, the owner’s doing it for the right reasons. So I’d say if you’re interested, proceed but with caution. Invest in a lawyer before signing any contracts.

C
Deal Addict
Jan 13, 2014
1230 posts
343 upvotes
Calgary
Heres what you should be doing:

1. Get an independent appraisal on the property to get a proper value.
2. Get condo docs and review them, or get a doc reviewer to do it for you.
3. Have the terms of the loan properly done up as an agreement. Also consult with a mortgage broker to see how it would pan out. as far as we do it, we will simply add that as a liability.
4. Talk to the board members to make sure there are no upcoming special assessment and apart from that youre golden and it looks you have done your homework very well.
[OP]
Member
Dec 20, 2005
489 posts
37 upvotes
masarwar wrote:
May 15th, 2019 6:35 pm
Heres what you should be doing:

1. Get an independent appraisal on the property to get a proper value.
This is risky though because I guarantee the appraisal will be for a higher price than the one we agreed on. I saw models like mine on lower floors sell for more money recently. My unit is on the top floor just under the penthouse. My unit would also come with a parking spot and a storage locker which I would rent out for extra income as I don't need them.
Deal Addict
Jan 13, 2014
1230 posts
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Calgary
mcbg1 wrote:
May 15th, 2019 6:51 pm
This is risky though because I guarantee the appraisal will be for a higher price than the one we agreed on. I saw models like mine on lower floors sell for more money recently. My unit is on the top floor just under the penthouse. My unit would also come with a parking spot and a storage locker which I would rent out for extra income as I don't need them.
Get one done for your own benefit, you dont need to share it with the landlord ;) . But thats what i would do. Things might be different in Ottawa. But yes youre on the right track from what i can tell. good luck!!
Jr. Member
May 8, 2014
114 posts
46 upvotes
Toronto, ON
masarwar wrote:
May 15th, 2019 6:35 pm
Heres what you should be doing:

3. Have the terms of the loan properly done up as an agreement. Also consult with a mortgage broker to see how it would pan out. as far as we do it, we will simply add that as a liability.
Have a lawyer review any agreement, not a broker.

If this guy is smart, then he won't just give you an unsecured loan; if it was me, at the very least, I'd want a lien registered in 2nd position behind the mortgagor (whomever funds your mortgage).

There's a reason credit card interest is so high - they are unsecured loans. So if he's not securing an interest, be prepared for usurous levels of interest.

I would also talk to various banks about applying for an unsecured line of credit. If your intention is to do this legitimately I.E. Declare the down payment loan on your mortgage application, it would be prudent to explore other sources for your down payment.
A semi-competent prole, having worked in mortgages at a "Big Bank" for a day or two.
Jr. Member
May 8, 2014
114 posts
46 upvotes
Toronto, ON
uberbaumer wrote:
May 16th, 2019 8:37 am
I would also talk to various banks about applying for an unsecured line of credit. If your intention is to do this legitimately I.E. Declare the down payment loan on your mortgage application, it would be prudent to explore other sources for your down payment.
As a follow-up, I'm speaking from experience.

My wife and I only had 10% down payment for our house. We were prepared to pay CMHC, when (to their credit, as their advice and conduct was otherwise crap), a CIBC Imperial Service advisor did an unsecured LOC application for us at the last minute, allowing us to technically have 20% down, and we avoided having to pay CMHC.

I can't stress how fundamentally transformative this advice was; not only did we not pay CMHC insurance, but it also allowed us to get the Home Power Plan (revolving secured LOC) since we had 20% equity. This came in mighty handy when we had $20k in emergency repairs 2 years into moving in.

... Talk to some banks!
A semi-competent prole, having worked in mortgages at a "Big Bank" for a day or two.
Newbie
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Jan 7, 2019
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Remember to factor in the true cost of home ownership.

Property tax
Condo fees
Repairs
Utilities

While I feel like this is a good opportunity for you....you really need to think this through, especially if the downpayment is going to be owed to the previous owner. Speak to a bank/mortgage broker and see what your repayment capabilities are. The banks will also complete an appraisal for you.
Deal Fanatic
Feb 22, 2011
5788 posts
5457 upvotes
Toronto
The exact same thing happened to an acquaintance of mine. The landlord wanted to sell but didn't want to deal with the process or pay commissions. I think you should definitely consider it, look at recently sold units on bungol.ca, get a copy of the status certificate and have a lawyer review it. Then make sure you can afford the carrying costs. Even if it's a good deal you may want to be sure you want to stay there for 5 years or more or the transaction costs may make it not worth it.
Member
User avatar
Nov 23, 2014
262 posts
185 upvotes
Toronto, ON
unless he is looking to at a premium price
If the home value is is $500k .May be he will adding the down payment of 5% and selling it to you for $525k

He can save on Realtors commission (of around 5%),can save on cleaning,painting,fixing/repairs and also on the downtime (lost rent) while the house is on the market

Also ,he has to first evict you /terminate the lease ,if he has to sell the home

He is gaining more than you !
Sr. Member
May 16, 2017
559 posts
572 upvotes
uberbaumer wrote:
May 16th, 2019 8:49 am
As a follow-up, I'm speaking from experience.

My wife and I only had 10% down payment for our house. We were prepared to pay CMHC, when (to their credit, as their advice and conduct was otherwise crap), a CIBC Imperial Service advisor did an unsecured LOC application for us at the last minute, allowing us to technically have 20% down, and we avoided having to pay CMHC.

I can't stress how fundamentally transformative this advice was; not only did we not pay CMHC insurance, but it also allowed us to get the Home Power Plan (revolving secured LOC) since we had 20% equity. This came in mighty handy when we had $20k in emergency repairs 2 years into moving in.

... Talk to some banks!
Assuming the mortgage is also with CIBC? If so, interesting that their Service Advisor probably broke their own mortgage lending rules. If not, was the unsecured LoC disclosed to whomever did do the mortgage?

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