Real Estate

Mortgage Application on Nearly Completed Preconstruction Condo

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  • Jul 24th, 2018 10:38 am
Member
May 22, 2013
305 posts
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Vancouver

Mortgage Application on Nearly Completed Preconstruction Condo

I originally purchased this 1 bedroom condo for $320K, upon closing including taxes the closing amount should be $330K. Assuming that the assessed value of the property upon completion is $580K by the bank and my income is sufficient to qualify for a larger mortgage, is any of these scenarios a possible option when taking out a mortgage?
  1. 0% downpayment and take out $330K mortgage
  2. Put 20% down on the assessed value ($116K), and take out $464K mortgage
  3. Put 10% down on the assessed value ($58K), and take out $522K CMHC-insured mortgage
Last edited by rMBA13 on Jul 14th, 2018 11:48 am, edited 1 time in total.
13 replies
Deal Fanatic
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Nov 2, 2013
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Edmonton, AB
Your mortgage amount should be based on $330K minus the amount down you already put down to the builder. NOT assessed value. Assessed value is more so for taking out a LOC or some other loan against the perceived value of your asset.

If it's less than 20%, then CMHC/another mortgage insurance applies.

As for how much money down you can put, that depends on your debt-to-income-ratio, aside from speciality products like 35%+ down, "no minimum income requirement" mortgages. Generally, lenders and the mortgage insurers allow your monthly debt load to be 40% of your gross monthly income, where the mortgage payment is calculated using the "stress test rate", not the actual mortgage rate. It is somewhere around 5% (a mortgage broker here will have a more accurate answer).
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May 22, 2013
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Vancouver
FirstGear wrote: Your mortgage amount should be based on $330K minus the amount down you already put down to the builder. NOT assessed value. Assessed value is more so for taking out a LOC or some other loan against the perceived value of your asset.

If it's less than 20%, then CMHC/another mortgage insurance applies.

As for how much money down you can put, that depends on your debt-to-income-ratio, aside from speciality products like 35%+ down, "no minimum income requirement" mortgages. Generally, lenders and the mortgage insurers allow your monthly debt load to be 40% of your gross monthly income, where the mortgage payment is calculated using the "stress test rate", not the actual mortgage rate. It is somewhere around 5% (a mortgage broker here will have a more accurate answer).
Thanks for your reply. I already put 20% deposit with developer, but my goal is actually to find out if there are ways for me to "free up" cash to buy another presale condo since the property value has risen and want to tap into the equity.

On scenario 1, I would be freeing up the original 20% deposit with developer
On scenario 2, I would be freeing up around $134K in cash
On scenario 3, I would be freeing up around $192K in cash
Last edited by rMBA13 on Jul 14th, 2018 11:45 am, edited 1 time in total.
Deal Fanatic
Jan 15, 2017
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Ottawa
1. No
2. No
3. No

If you wish to free up money, take out an open mortgage based on the purchase price upon closing. Then refinance the open mortgage into a closed mortgage based on the assessed value. Yes, double work, double fees and whatnot, but that is how it is done. OR

Take out a closed mortgage on closing. Then apply for a HELOC based on the assessed value. So, $320k less 20% = $256k mortgage. Appraised value (and you will need to pay for the appraisal) is $580k. Available for HELOC - $580k x 80% = $464k - $256K current mortgage = $208K. HELOC will have higher interest rate than a mortgage and the lender may charge fees for this, but this is neater of you are planning to buy an investment property.
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May 22, 2013
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Vancouver
skeet50 wrote: 1. No
2. No
3. No

If you wish to free up money, take out an open mortgage based on the purchase price upon closing. Then refinance the open mortgage into a closed mortgage based on the assessed value. Yes, double work, double fees and whatnot, but that is how it is done. OR

Take out a closed mortgage on closing. Then apply for a HELOC based on the assessed value. So, $320k less 20% = $256k mortgage. Appraised value (and you will need to pay for the appraisal) is $580k. Available for HELOC - $580k x 80% = $464k - $256K current mortgage = $208K. HELOC will have higher interest rate than a mortgage and the lender may charge fees for this, but this is neater of you are planning to buy an investment property.
Another question, albeit a bit unrelated but it matters given my situation for taking on another mortgage on second property.
If I already own a rental property with a 20% downpayment conventional closed mortgage, but would like to acquire second property as a primary residence with 40% downpayment but my household income levels may not actually qualify for such high combined mortgage loan amount, will the bank still approve the mortgage because of the significantly high downpayment on 2nd property?
Deal Guru
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Feb 2, 2014
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Toronto
rMBA13 wrote: I originally purchased this 1 bedroom condo for $320K, upon closing including taxes the closing amount should be $330K. Assuming that the assessed value of the property upon completion is $580K by the bank and my income is sufficient to qualify for a larger mortgage, is any of these scenarios a possible option when taking out a mortgage?
  1. 0% downpayment and take out $330K mortgage
  2. Put 20% down on the assessed value ($116K), and take out $464K mortgage
  3. Put 10% down on the assessed value ($58K), and take out $522K CMHC-insured mortgage
MINIMUM 5% down on the lesser of the purchase price or appraised value.

0% down isn't happening. Mortgage on the appraised value isn't happening, unless you want to go private.
Kevin Somnauth, CFA
Principal Broker/Owner - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative
Newbie
May 23, 2011
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So I do this with my rental property. There’s a mortgage on it for the original purchase amount and any appreciation I just get it appraised and have it as a HELOC.

The heloc interest is a bit higher. Like 1% higher than mortgage rate, but it’s tax deductible if you use it for investment.

Whereas if you take out a big mortgage, for it to be tax deductible, you have to prove to the CRA that the whole amount that you got from refinancing the property went towards a tax deductible investment
Last edited by JoloLo on Jul 14th, 2018 8:24 pm, edited 1 time in total.
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Jul 10, 2018
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rMBA13 wrote: Another question, albeit a bit unrelated but it matters given my situation for taking on another mortgage on second property.
If I already own a rental property with a 20% downpayment conventional closed mortgage, but would like to acquire second property as a primary residence with 40% downpayment but my household income levels may not actually qualify for such high combined mortgage loan amount, will the bank still approve the mortgage because of the significantly high downpayment on 2nd property?
If your rental property is paying for itself and your household income is comfortably within the TDS (Total Debt Service Ratio) on your primary residence (with 40% down), I think lenders will look at that favorably. But ask a mortgage agent to be sure as they will know the criteria of their lenders better.
Deal Guru
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Mar 31, 2008
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The maintenance cost will have an impact on how much mortgage can be taken out of it, so total mortgage available might be a bit less than you expect.
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Mar 20, 2017
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CdnRealEstateGuy wrote: MINIMUM 5% down on the lesser of the purchase price or appraised value.

0% down isn't happening. Mortgage on the appraised value isn't happening, unless you want to go private.
Having a hard time understanding the highlighted statement.
What do you mean? Throughout the history mortgage refinances were available based on appraised value, as far as you keep 20% equity inside. Something changed?
Last edited by GalvToronto on Jul 16th, 2018 1:54 pm, edited 2 times in total.
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GalvToronto wrote: Having a hard time understanding the highlighted statement.
What do you mean? Throughout the history mortgage refinances were available based on appraised value, as far as you keep 20% equity inside. Something changed?
That's a refinance...OP is PURCHASING a property. Purchases have a different protocol.
Kevin Somnauth, CFA
Principal Broker/Owner - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative
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Mar 20, 2017
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CdnRealEstateGuy wrote: That's a refinance...OP is PURCHASING a property. Purchases have a different protocol.
If I understand correctly, you are saying that its impossible to buy with 20% discount from market value and say to bank "forget about downpayment, I already have 20% equity", right?
Deal Guru
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GalvToronto wrote: If I understand correctly, you are saying that its impossible to buy with 20% discount from market value and say to bank "forget about downpayment, I already have 20% equity", right?
Yup.

As I said, it's the LOWER of the purchase price or appraised value.
Kevin Somnauth, CFA
Principal Broker/Owner - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative
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May 22, 2013
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Vancouver
Seems like using HELOC would be a good strategy to accelerate the accumulation of rental properties

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