Since it became tougher to get approved for a mortgage, I decided to pull out all of my banker’s tricks so you can benefit from my experience in credit and mortgages. There are several ways to create cash down for a mortgage. Some are more prudent than others. This is why I will split this post in two parts:
the first part will be about more traditional ways to get cash down for a mortgage, the other part will talk about more creative way to get your mortgage approved.
The most classical and obvious way to get sufficient cash down for a mortgage is having a savings account. You can deposit your money in a 3% interest bank account and wait until you have enough money. The interest yield is barely enough to protect from inflation, but there is absolutely no risk.
If you project to buy your house in 12 to 24 months, you are better off with an investment account. With the TFSA (Tax Free Savings Account created by the government, it will be easier to get a decent yield without being taxed on it. For those who don’t live in Canada, I suggest you go for a very conservative fund (i.e. 90% to 100% in fixed income and liquidity) as this is definitely not the time to play around with your future cash down. Use a periodic investment structure that is timed with your pay cheque.
I don’t know if you are allowed to withdraw money from a 401(k) or IRA account in the States (any readers can comment on this please?) but in Canada, you are allowed to withdraw up to 20K per person from your Registered Retirement Saving Plan (RRSP) to buy your first house without being taxed. This is called the Home Buyer Plan (HBP).
You are young and you don’t have all the money? Mom and Dad can “donate” a part of the cash down. As long as there is a donation sheet signed by the parents, the bank will accept it and won’t ask any questions. If you pay them back after, nobody will ever ask you if you did if you know what I mean 😉
Land (new construction only)
If you plan on building a brand new house and you already have a land, the bank can consider the value of the bank as cash down for your mortgage. It obviously has to be paid off or at the very least, not given as collateral on the debt you contracted to purchase it.
In my next post about getting a mortgage, I will explain more creative ways to get cash down for your mortgage. Please note that there are no suggestions or advices in this series. I am only writing about what I know. You must seek professional advices when it comes down to personal finance, especially for mortgages.
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