In my previous post about how to make cash down for a mortgage, I outlined the more traditional ways to get sufficient cash down before getting approved for a mortgage. However, sometimes we have the youth, the energy and the cash flow to make it happens, it doesn’t mean that we have enough cash down right away thought. For those who want to take more risk and don’t want to wait to get their mortgage, there are more creative ways to “create” cash down for your mortgage.
Please note that these are not recommendation or advices, I am only pointing out ways to make cash down for a mortgage, not telling you to do it! Professional advices are required before getting into these strategies.
The RRSP Loan switchback
This method is used by several advisors in the field. Since you are allowed to withdraw up to 20K per person from your RRSP without being taxed (Home Buyer Plan), you can take a RRSP loan of 20K in order to benefit from this option. So you take the 20K RRSP loan, invest the money and receive your tax return. Then, you withdraw your 20K under the HBP and reimburse the RRSP loan. Where is your cash down? Your tax return! At 38% marginal tax rate (it could be higher), you will receive $7,600.
The financed cash down
You don’t have any cash down but you have a good income and low debts? You can “finance” your cash down. Take a line of credit of 10 or 20K with a purpose like investing or emergency fund. Then, invest this money in a money market fund for 3 months. When you apply for your mortgage, they will not look further than 3 months to see where the money is coming. Therefore, they won’t figure that you are borrowing this money.
This technique is getting way tougher with the current mortgage market. You can always negotiate with the seller in order to owe them a part of the money at a later date. Example: agreed price: 300K. Price showed on the purchase offer: 275K with a separate contract of 25K aside payable in 12 to 24 months. Is this legal? I have no clue, but I say it happened several times. However, you better check if it’s legal or not before doing anything. Once again, these are ways I saw happened in the banking industry, I don’t endorse them.
The cash back run around
This method is legal since it is offered by several bankers as well. Instead of negotiating a good rate, you can accept the posted rate (yeah I know, it sucks!) and get a cash refund. This could go worth a few thousand bucks. It is a great solution if you are missing 5K and you don’t want to wait another year (when you think about it, even if you wait one year, you will probably be short again since the housing market will increase by at least 2 to 3% (inflation rate) most of the time).
In later posts, I will come back to some of those techniques with the pros and cons of each of them. This is what happen when you get creative in the financial world; you better know what you are doing!!
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