# Down payment Options



## novasaver (Oct 19, 2012)

Hello,

I'm trying to figure out the best way to quickly get a down payment together to buy a house. I know saving would be best, but that's not really an option for me at the moment. Here's my situation:

We (my wife and I + 2 kids) are renting the house that we have been living in for 3.5 years. Our land lord approached us in the middle of the summer asking us if we wanted to buy the house, and gave us a price of $185K. We don't have any savings to use as a down payment and our credit is not in good shape so we did not look into any real possibility of buying the house at the time. Our land lord contacted us once again last week and offered to drop the price to $169K and proceeded to tell us that she is going through a divorce and they (her and her husband) are selling all their rental properties.

So if we can't buy the house ourselves, it looks like we will have to move. The problem with moving currently, is the fact that my wife runs an in-home daycare and there are no rental properties in the surrounding area that we could move to and she could keep her current clients. So to move means for her to stop her day-care and be with-out any income until she can find another job or get a new in-home daycare running at the new location. Unfortunately we don't have any savings to cover the kind of job downtime this would require.

We contacted a Mortgage Broker (we tried the banks they said no, even if we had a down payment), the Mortgage broker pre-approved us for the mortgage as long as we can get the 5% down and closing costs. He suggest getting an RRSP Loan and letting it sit for 90 days before we take it out to cover the down payment or getting a Line of Credit from the bank to do it.

Our concern is trying to pay the loan payment on top of all the other monthly cost that come with owning the home. Most RRSP loans I see from the banks only offer payment schedules of up to 12 months. This seems like we wouldn't be able to make those payments on top of everything else. So we were thinking about getting a line of credit instead as the payback term can be longer lowering that monthly payment. But our credit is not good so we would need a co-signer and I know the bank won't give us a line of credit to cover the down payment. We would have to come up with some other reason for needing it. Plus finding a co-signer may not be as easy as it sounds either.

Back to the RRSP option, Even with that I'm not sure which RRSP type to get (GIC, ?) and can you use a co-signer for an RRSP loan if needed?

Any help, thoughts/direction would helpful thanks.


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## Plugging Along (Jan 3, 2011)

I am sorry, but I think this is one of the worst ideas I have ever heard for your situation. I think by doing this, you put you and our family in great risk for bankruptcy.

Here are some flag I see in your post

No savings for a down payment of only 5%
No savings in case of job lost
Poor credit
No idea if you can pay the expenses and the loans
No understanding of rrsps, or investing
You are trying to mve around borrowed money with no idea of if his is doable

I would keep looking at renting and hope that the person that buys the house is doing it as an investment.

I suggest that you find a way to come up with some savings so your wife can reestablish a day home, or she should look for other work.


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## marina628 (Dec 14, 2010)

I wouldn't stress about trying to purchase the home from landlord.But if she really wants you to purchase it , she can give you the down payment as a gift.


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## Charlie (May 20, 2011)

marina628 said:


> she can give you the down payment as a gift.


or a loan. (the $12K you'll need (5% plus closing costs)) may be less than her cost of selling???)

But you need to be super cautions and realistic. You're flirting with financial ruin. Ownership costs will likely be more than your rent. Know them. If nothing else, this may be the kick in the pants that helps you get a savings plan in place.


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## crazyjackcsa (Aug 8, 2010)

I suggest visiting a loan shark. Worst comes to worst, he does some work on your knees. You go to the hospital, and they give you two brand new ones!


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## sprocket1200 (Aug 21, 2009)

Divorce, sweet!!! Offer her $125,000. She's likely to bite.


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## Cal (Jun 17, 2009)

You never know for sure that you would have to move, perhaps someone will buy the place to use as a rental unit, it does have a current tenant (you). You may just end up writing your monthly rent check to another LL.


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## novasaver (Oct 19, 2012)

Thanks for the suggestions. Loan shark it is, who needs knees. :rolleyes2:

Seriously though, we have pretty much ruled out the RSP loan option, I just can't see making the RSP loan payment work on top of everything else. We may look at getting a line of credit with a co-signer and using that as the down payment if the monthly payments are livable. I know this is not an ideal situation and it has major risks, but we also just can't move either. We also can't just stop the day-care, my wife has signed contracts and would need to negotiate how to stop those contracts out of term with each family. I was looking around today at other rental properties within our area and the prices start at an extra $250-500/month compared to what we are paying now. If I had to increase our monthly spending by that much I would at least like to see how that compares to paying a line of credit off with the mortgage payment/taxes for this house we are in now.

Currently we pay for heat, water, power, cable, insurance, etc. So with buying the place I would think the only increased monthly cost would be the mortgage and taxes compared to our current rent payment. And I don't think she is taking a loss on the rent vs her mortgage. She has suggested that our payments might even be lower then what we are paying her for the rent now.

The possibility also exists to assume her mortgage, but that would be at a higher interest rate compared to what we could get on our own and we would still need the downpayment.


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## MoneyGal (Apr 24, 2009)

Your insurance cost will be higher as an owner than a renter, and you will need to be responsible for maintenance as well. Don't overly discount the cost of maintenance; it isn't necessarily very much in any given year but we've replaced our furnace and both parts of our roof (flat and peaked) in the last two years, plus we are replacing some windows this year - it adds up. (The windows are essentially a cosmetic decision but the furnace and roof repairs were required!)


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## Four Pillars (Apr 5, 2009)

I can't offer much other than to agree with other posters on what a bad idea this is. You just can't afford to buy a house.

As MG said - maintenance is a lot!

I understand your situation with the daycare, but don't let a negative situation (cancelling contracts etc) lead you into an even worse situation.

Let her sell to someone else, see if you have to move and then go from there. Can you not set up a daycare in a different area where you can afford the rent?


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## marina628 (Dec 14, 2010)

If you need a cosigner for the credit line you cannot afford to purchase this house.Many people purchase investment properties so I agree that she can sell it as a investment property and may have no consequence to you.
Forget about assuming her mortgage and also if you do a private deal the bank will insist on doing an appraisal.I know this as I sold a rental property to one of my tenants and because it was on no MLS they use the appraisal value to determine the mortgage the buyers could get.If she really wants you to purchase at a fair price then she can gift you the 5% plus closing cost.We have had this discussion with a tenant of ours who wants to buy but has no downpayment as well.We are willing to gift them the 4.% it would cost us in RE fees and the banks are 100% ok with this .


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## Plugging Along (Jan 3, 2011)

Everything you have written indicates that you are going to buy the place even if it's an awful idea.

Could I suggust that while you are thinking about how your going to do that, that you also plan for the worst? 


There is nothing stopping you from seeing if you can find another place, set up another dayhome, set up an emergency fund, and or find other work for your wife, and additional work for yourself. As said before, you can't control the move, but you can control some of your own options.


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## novasaver (Oct 19, 2012)

After reading the replies on here and talking it out with my wife and going over and over our finances and seeing where we can and can't cut back, we've come up with an action plan. Borrowing the money for the down payment just won't work. I mean yeah if everything was set in stone we may be able to swing it each month but it would be tight and we would run the risk of any unexpected expense throwing the whole thing off.

So instead, we are going to contact the land lord and see how long she could wait to sell. We would like her to wait at least a year or a bit more. If she can agree to that we will try to save the down payment over the year or so. Now I understand that is also a major problem (to save say 12K in 12 months). But we are thinking if we can sell our car and use the money to pay off our car loan, then we would have an extra $400 per month right there to put towards the savings. This on top of the fact that we could get a Line of Credit with a co-signer, and move all our high-interest rate credit cards to a lower-interest rate line of credit to save on our monthly payments. This would put us close to a $600/month savings. Also while this is going on If I or she could find a part-time job for the evenings and weekends would hopefully put us close to the $1000k/month we would need to save.

The great thing about this plan is that if we decided not to buy the house or have to move, we could afford the increase in rent a new house may have and we are still making progress on getting into a better financial position to buy a house *eventually*. The drawbacks would be if we can't sell the car it's hard to make good headway and if she can't wait to sell we may have to move very soon and it would be hard to make the increased rent payments in a new place before we can cut our costs back or increase our income.


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## MoneyGal (Apr 24, 2009)

Very nice plan!

You may encounter some problems on her end - in a divorce, sometimes people need or want to sell assets for cash immediately to settle other issues. 

You might want to enter into a formal rent-to-own arrangement with her. 

Hopefully this will work out and, like you said, even if it does not you are making very good headway in any case. It must make you wonder why you didn't make some of those new choices earlier!


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## marina628 (Dec 14, 2010)

I can share experience on the rent to own scenario as well.This is our experience with TD Bank , same tenant who wanted to buy asked us about rent to own.TD bank told us Tenant had to deposit a monthly payment into a JOINT acct with us and this had to be set up minimum 12 months at end of 12 months TD bank would take this balance and apply as the down payment for the tenant on the house.We thought we could just credit them 12 months rent as a down payment but this is not the proper way to do rent to own.I never realized the bank actually has these things set up ,the advantage of dealing with the bank from beginning is they qualify the tenant and they set up the payment schedules etc.
I still think if you need a cosigner for a credit line this won't work for you as it shows weakness in your credit ,have you been turned down by your bank for a consolidation loan already?


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## novasaver (Oct 19, 2012)

We tried a few months ago to get a consolidation loan and the bank(s) said not unless we had a co-signer. Our Mortgage Broker reviewed our accounts and our credit last week. According to him, they can give us a deal as long as we have the 5% down. Basically he said that my credit was good, but my score was not and my wife's credit score is good but she's not the breadwinner so they need to average it all out between the two of us and in that case they can make us an offer/deal. We just needed the 5% down plus closing costs.

The problem with my credit score is that I was a few 30-days late on a couple of credit card payments and that all my credit cards are maxed out. That said within the last two weeks I have made those late payments and now I'm not behind on the monthly's, they have just not shown up in the credit file yet. But it will take my score awhile to recover.

We had a daycare person drop out all of a sudden last spring and we had been unable to fill that spot until recently (new daycare kid coming on Dec. 1st) So we had been using the credit cards to get us through since the spring. Once the new child starts we are actually $200/month ahead of our expenses, without we were about -$300 vs expenses a month.

Our plan since earlier this year was to save and save and save until we got out of debt and had a down payment saved, while renting here. But the unexpected drop in her income in the spring, and now the selling of this house has caused the problem we are currently facing. It's been a rough few months but we were just starting to get some traction in our plan. I know people will say you should have prepared better years ago, but you do what you can at the time. Every $ that came in was going out to cover the bills at the time and there was no way to bring any more money in to save for problems like unexpected bills and such.

All we can do is move forward how ever this turns out now.


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## dougbos (Jun 4, 2012)

In Ont a renter does not have to move out because their unit is being sold. The buyers have to give 60 days notice to you if you are on month to month or wait until the end of your lease if you are on a year contract and proof that they are buying and they want to move in themselves or a close family member. As she said they are selling their investment properties, chances are it will be bought as an investment and you won't have to move.


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## brad (May 22, 2009)

Another thing to consider in all this is the total cost of buying your home with only 5% down. We have this curious habit of saying "I'm buying this house for $185,000," whereas in actual fact if you take out a 25-year mortgage with 5% down, assuming 3.2% interest (which is a decent current rate but is bound to go up), you're really going to buy your house for about $265,000. That's what you're going to spend on principal plus interest.

If you were to put down 25% you'd pay about $248,000, a savings of $17,000 in interest. And if you took out a 15-year loan with 25% down instead of a 25-year loan you'd pay about $221,000, a savings of $44K. (Note that I used a US-based calculator for these numbers; I think Canadian mortgages are calculated differently, but for illustration purposes these give you an idea of what I'm trying to get at).

The point is that if you can step back to think beyond your immediate crisis, there may be advantages to passing up this house and waiting until you have your finances in order. I didn't buy my first home until I was in my late 40s, but that gave me plenty of time to save up for a 25% downpayment. Plus I was in better financial shape overall, allowing me to take out a 15-year mortgage (which I'm on track to pay off over less than 10 years).


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