# Downpayment for Second Property



## swoop_ds (Mar 2, 2010)

Hello,

My wife and I currently live in a small town in Saskatchewan. Our current mortgage is 69000, it started at 75000. The house is likely worth about 100000 if sold today as prices have went up quite a bit. Anyways, we want to potentially buy a new primary residence and keep the current house as a rental. What sort of downpayment does the bank require in this situation? Is it the usual 5% or is it 25% because we'll have the income property in the mix?

Also, since the house is worth more than we paid for it, does that have anything to do with anything in the banks eyes or not really?

Our salaries are about 90000$ combined but most of it currently goes to debt due to silly schooling debt from a few years ago as well as just being silly debt from a few years ago. In a couple years it should be all gone but currently it would be hard to save up 25%.

Anywho, any info would be awesome!

-Dave


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## junkedBrian (Apr 4, 2012)

You can use your current house to leverage some money for a downpayment, might be tricky tho.
Basically you would need to get your house re-assessed ($300-400) by your bank, have them agree that it's worth $100,000, then take out a HELOC which would (usually) be for "House Value - Mortgage - (House Value X 20%)" so in your 
(100k - 69k) - (100k * 20%) = 11k for a HELOC

You could then use that 11k for a down payment on a new home of which I believe you require a minimum of 5%, if you have your old place rented out or signed leases you can use that as additional income on your mortgage application.
Some banks might ask you to keep 25% in your home so your HELOC would only be 6K

And you might not be able to do any of this depending on your income/debt ratios and credit.


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## Just a Guy (Mar 27, 2012)

I wouldn't recommend a HELOC, banks don't like that on a rental. What you should do is refinance (with a new mortgage) your house for as much as you can get, then use that money as a downpayment on the new one. It may pay to wait a few months between purchases too.

If you have a good income, the banks won't, usually, care about the fact that the old one is now say 95% mortgaged, they just look at your ability to service the debt. You may want to read "The Simple Solution to Canadian Real Estate Investing".


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## swoop_ds (Mar 2, 2010)

@Just a Guy so the 'new mortgage' would allow us to put whatever we want over and above the $69000 down on the new place? I'm not sure I understand completely how this works.


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## Just a Guy (Mar 27, 2012)

Well, you can't get whatever you want, it depends on the bank's lending policy and the appraisal...but it's easier to get a high loan to value on a principle residence than on a rental. So, you refinance your principle residence first, to get the most, then wait a bit (4-6 months say). Then buy a new principle residence (again you can get a higher loan to value), and convert the old place to a rental (the bank won't look at the loan to value, they will only look at your ability to service the debts). If you try to finance a rental, you could probably only get 65-75% loan to value.

Of course, at higher ratios than 75% you'll also incur CMHC fees, so it may not be worth it.


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## Just a Guy (Mar 27, 2012)

Then again, with rental properties you can write off the interest and fees, which you can't do with a personal home, so the more you get out of the "rental" the lower your mortgage will be on your house.


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## swoop_ds (Mar 2, 2010)

I just read about taking out an rrsp loan, then using the hbp to withdraw from your rrsp for a downpayment.
The current house and mortgage are in my wife's name so unless the fact that we are married comes into play, this could possibly work for me. Does anyone k ow if I'd be eligible for this? 

It seems that with the tax refund as well as the savings in cmhc fees, this could be a good idea.


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## Just a Guy (Mar 27, 2012)

The RRSP loan thing isn't quite as simple as you think. First off you need a self-directed RRSP (usually means extra fees). Then you DO need CMHC (it's a requirement), and you can only charge yourself posted rates. There are a bunch of other fees as well (but these depend on options and things). Overall, when I looked into it, it didn't seem like a good use of RRSP money, as you can get better returns with less hassles...


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