Flex down mortgages

"How are we expected to save a down payment when the rent we pay is higher than our mortgage payment would be?”

Over the last two weeks, several clients have asked if there is any way to get a mortgage if they don’t have a down payment.

There are a few options available.

The first potential source of down payment I explore with purchasers is a gift from family.

Gifts need to come from first-degree relatives, which means ideally a parent, sibling, or grandparent. I have had a few files approved when the family member giving the funds was an aunt or uncle, but these are done on an exception basis.

When a family member gives you funds for your down payment, the gift needs to be non-repayable. The person giving the gift and the person receiving the gift both sign a letter confirming that the money is a legitimate gift.

Not everyone has family in the position to give money to help with a down payment.

Many lenders offer a flex-down mortgage product.

Flex-down mortgages are insured by either CMHC or Genworth, and essentially allow purchasers to borrow from other credit facilities for their down payment.

Flex-down products allow buyers to use non-traditional funds for their down payments. Non-traditional sources of down payment (as defined by CMHC) may include:

  • any source that is arm’s length to and not tied to the purchase or sale of the property such as borrowed funds
  • gifts
  • 100 per cent sweat equity
  • lender cash back incentives.

While there are still a few available, most lenders have moved away from cash-back incentives.

Purchasers using borrowed funds need to qualify to cover their proposed mortgage payment as well as any payments related to the borrowed down payment, in addition to any other payments they already make.

Flex-down mortgages are not the right fit for everyone. If your credit is maxed out or you’ve had credit issues in the past, lenders will not be keen to approve a flex-down mortgage.

If, however, you have a history of managing your credit responsibly and make a healthy income, lenders are far more likely to approve a flex-down mortgage for you.

The CMHC and Genworth programs are very similar. Key points to know are that the minimum recommended credit score they are looking for is 680. Minimum down payment is five per cent.

One and two unit properties (ie: a house with a suite) are eligible under this product, and normal mortgage guidelines apply.

Mortgages under this program are subject to a maximum purchase price of $1 million and a maximum amortization of 25 years. They can be used for a purchase (one-time advance) as well as for a Purchase Plus Improvements (adding funds up front for renovations).

An important point to note is that the insurance premium is slightly higher. For a flex-down mortgage with five per cent down, the premium is calculated at 4.5 per cent as compared to four per cent for a mortgage with a traditional down payment.

As an example, for a purchase price of $500,000, the premium would be $2,375 higher.

Also important to note is that lenders are very particular when approving flex-down files. As you are essentially financing 100 per cent of your home, they want to make sure you are solid.

Employment stability and a credit history that demonstrates responsible management of your finances are essential.

Who might this program be a great fit for?

If you are self-employed and report significant income on your tax return but keep most of your money invested in your business, this might be a great option to help buy a home sooner rather than later.

If you are newly graduated from university and have established credit and great income but have put all of your money into paying for your education, this might be the right fit.

If you think that flex down might work for you, call us at 250-826-5857. We’re happy to discuss your particular situation to see if Flex Down is the right fit.

Don’t forget, property taxes are due July 3.

If your lender pays taxes on your behalf and you haven’t already done so, go online and claim your Home Owner's Grant.

It takes less than five minutes and saves standing in a long line at City Hall!


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About the Author

Tracy Head and Laurie Baird help busy families find mortgage solutions. Together they have more than 45 years of experience in the mortgage industry.

With today’s increasingly complicated mortgage rules, Tracy and Laurie spend time getting to know the people they work with and help them to better understand the mortgage process. They support their clients before, during, and after their mortgage is in place.

Tracy and Laurie work closely with their clients, offering advice and options. With access to more than 40 different lenders, Tracy and Laurie are able to assist with residential, commercial, and reverse mortgages in order to match the needs of their clients with the right mortgage package.

They work closely with their clients to find the right fit, and are around to provide support for years down the road!

Contact them at 250-862-1806 or visit http://www.okanaganmortgages.com

Visit their blog at https://www.okanaganmortgages.com/blog


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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