# Buying a house without a mortgage.



## yousufj56 (Oct 4, 2018)

Hi all,

I know a seller that is willing to accommodate me purchasing his house. 

I would give him a large down payment and then pay the rest off to him on a month to month fashion. 

What is the best way we can both secure ourselves in this process while minimizing all fees/tax etc?

I heard about "vendor buy back mortgage". The seller will have to register the remaining amount as a mortgage loan. But would that count as income for him? Taxable?


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## OptsyEagle (Nov 29, 2009)

Of course it would. The interest portion will be taxable income.


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## AltaRed (Jun 8, 2009)

Indeed and proper mortgage papers need to be drawn up by lawyers. As a buyer, you need to protect yourself against who the seller can assign (sell) the mortgage too, and what happens to the mortgage if the seller gets hit by a bus (expires). Personally, I'd never enter into a VTB mortgage.


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## yousufj56 (Oct 4, 2018)

OptsyEagle said:


> Of course it would. The interest portion will be taxable income.


Sorry forgot to mention, no interest on the loan.


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## nobleea (Oct 11, 2013)

yousufj56 said:


> Sorry forgot to mention, no interest on the loan.


As long it's an arms length transaction, I don't believe this is an issue. Likely they just increased the purchase price to build in the interest.

If it's non arm's length, ie a relative, then a 0% loan is not allowed. They have to charge CRA's prescribed rate (I think 1%). If they don't, the interest they would have collected at the prescribed rate gets added to the lender's income tax bill.


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## 319905 (Mar 7, 2016)

yousufj56 said:


> Sorry forgot to mention, no interest on the loan.


An article on vendor financing ... http://www.financialpost.com/vendor+financing+creative+sell+home/3028058/story.html


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## lonewolf :) (Sep 13, 2016)

Maybe consider lease to own home instead if have option to buy in x amount of years & prices drop do not have to buy?


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## yousufj56 (Oct 4, 2018)

rikk2 said:


> yousufj56 said:
> 
> 
> > Sorry forgot to mention, no interest on the loan.
> ...


Interesting post!!


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## yousufj56 (Oct 4, 2018)

lonewolf :) said:


> Maybe consider lease to own home instead if have option to buy in x amount of years & prices drop do not have to buy?


I don't think he's willing. I do know of a financing company though that gives loans to people but the loan amount represents "shares" of the property. Thus, if the property is sold, they get their money back plus/minus any profits/losses. 

Wouldn't this be a good strategy in these times of economic worry? Or is there some sort of insurance that can protect you in case of market crash?


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## lonewolf :) (Sep 13, 2016)

I m not really a real estate guy. Though my thinking is if you can get rid of the middle man (the bank) & their profits some how it should be able to sweeten the deal for the either the buyer, the seller or both 

Money talks, if you can figure out a way rent to own to benefits both of you then he will probably go through with it. If you have money on the table (skin in the game) your going to be a good renter pay your rent & look after the place. . Many years ago I skimmed through a book on the ways to do it when @ the library. I forget the details & the name of the book.


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## Rusty O'Toole (Feb 1, 2012)

You can do anything you like, but get it on paper. You should consult a lawyer to make sure everything is done in legal form. I know you don't anticipate problems in the future, but business should be done in a businesslike way.

You could say something like " Mr A agrees to sell property known as XXXXX to Mr. B, for a price of $250,000 to be paid $2500 per month for 100 months" or whatever you agree on. A lawyer can put it all in legal form.

In this case the seller would not have to pay income tax on the interest because there is no interest. But he would have to pay tax on the capital gain, if there is one. Capital gains are taxed at a lower rate than income which is a savings for the seller.

By the way I think the term you were looking for is "vendor take back mortgage". The way you describe there would not have to be a mortgage as such , just a deferred payment plan.

There are other ways to get at the same thing like rent to own, vendor take back mortgage etc.


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## yousufj56 (Oct 4, 2018)

Thanks, let's see what happens


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## baconbit (Oct 18, 2017)

just bought a rental property w/o a mortgage.

had 25% cash DP and the rest was funded via non secure loan by my local bank


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