Getting Loans For Real Estate Deposits

January 16, 2018 7:21 pm Published by

Cartoon representation of a loan for real estate deposits

To secure a loan for a real estate deposit, there are two ways which we will be looking at.

#1 – if you own a home

If you own a home and have a firm sale agreement, accessing money for a real estate deposit on your next home purchase can be quite simple, so long as the equity is there. By using a service like Deposit Financing, the deposit can become readily available and provided on your behalf in under 24 hours. This service closely resembles that of a bridge loan, meaning the loan is associated with the property you are selling, but the proceeds are used towards the home you are buying.

For an article on bridge loans click here.

Some of the benefits of this type of loan are the fact it is unsecured meaning there is no mortgage registered, there is no appraisal, no credit or income verification and no monthly payments as the funds are not due until your sale completes. The deposit is also transferred directly to where it is to be held in trust, by your purchase contract. Because this is a short-term loan with a definite and specified closing date, there is no need to register a mortgage, and because it is being paid back with equity, there is no reason to verify if you have the required income levels to support this debt.

For more information on this service, please email send an email to admin@depositfinancing.ca.

What if I own a home and am in the process of selling, but I don’t have a firm sale agreement?

If this is the situation you are currently in, if possible, the best route to take would be to wait until you do have a firm sale agreement and proceed with the method mentioned above. If this is unable to happen, as time may be of the essence, there is a modified option of the first way. This consists of roughly the same process, but the difference is the fact a mortgage will be required to be registered as there is no precise closing date, and an appraisal may also be needed. Because a lease is to be registered, this will result in more costs to you and will take longer to fund the deposit.

This can also be done if you aren’t selling at all and are just buying a second or vacation home. Saying this, there may be extra factors to be considered based on your situation.

Coins and a house needed to obtain a loan for a real estate deposit

#2 – if you don’t own any real estate

This situation involves a lot more moving parts and will not be as easy to obtain a loan for a real estate deposit. Because the deposit forms part of your down payment, and down payment being your funds, ultimately what is happening is you are reducing your down payment as you are taking on more debt. This will start to affect your GDS & TDS ratios (gross debt servicing and total debt servicing), as you will need to prove you have the required income levels to support this debt. These ratios are what most lenders use to calculate your gross income relative to the amount of debt you will be taking on. For people with proper credit, these ratios may extend to 39% GDS and 44% TDS. This means your mortgage debt should not be more than 39% of your total income, and all of your other obligations plus your mortgage debt should not be more than 44% of your total revenue.

With the new mortgage lending rules, known as the stress test, that all lenders who are regulated by OSFI (Office of the Superintendent of Financial Institutions) will be required to implement, this will impact your qualifying amounts even more so. Because you will be required to qualify at higher rates (not pay, just qualify), you will be eligible for less money.

For a full article on the mortgage stress test click here.

What are the options?

  • You either need to be making excellent income so you can qualify for a line of credit on top of the mortgage you will already be qualifying for
  • You have a business that a loan can be secured against
  • You have some valuable asset which the loan can be secured against (car or jewelry for example). With this option, you will also need to find a company willing to loan against these assets and I can assure you, you will be paying a significant interest rate.

The best advice that can be given if this is the situation you are in is to hold off on purchasing a home until you can come up with the deposit from your resources. People with a house have their money tied up and just need access to it earlier. But people with no home are looking for money which they don’t have. In cases, this can be a recipe for disaster.

This post was written by Zack of Deposit Financing

Real Estate Deposits

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This post was written by zack

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