# Struggling to come up with down payment



## KollaC

I hope some of you can give me good advice please.

Me, a single mom and my son in his early 20's would like to buy a home together. Currently we are renting and with interest rates so low, we can afford the monthly payments on a house but coming up with the downpayment is a big problem for us at the moment.

We are pre approved for a loan big enough that will cover the amont we need to borrow. 

I still have access to a line of credit I had with my ex husband, we are on very good terms and I have been in charge of the line of credit for a long time. I can borrow about $ 7 000 from the line of credit on the short term till other monies that I can lay my hand on later comes available. The line of credit is linked to a joint chequeing account. On my monthly statements of both the chequeing account and the line of credit both my ex husbands name appears and mine.

My plan now is to borrow $ 7000 from the line of credit as part of the downpayment of this dream home we saw up for sale. 

I would like to know with only 5% down can I go to my bank and draw the $ 7000 cash from the line of credit and deposit it into my son's account where it will show up as just money.

My question is : Will the mortgage lender be able to see or trace that $ 7 000 back to my line of credit? My understanding is that for a downpayment you cannot borrow from your line of credit.

I am worried that if I wait for other money I have that will be available to me in about 8 weeks, this dream home will be sold. Thats why I was thinking for the short term to borrow against my own line of credit for the downpayment.

I am asking this as recenly when we applied to be pre approved i got the shocking news that I had no credit rating ! I have been using the line of credit and a credit card I had jointly in my ex husbands name for years and have been paying it off montly on time and yet when they did a credit rating on me nothing showed up for me ! Since then I got my own credit card and are building up my own credit score.

On the credit card I was using previously on the monthly statement only my husbands name appeared yet I had a card that was joined to his.
Now I am wondering when they investigete me now to be approved for a loan will that line of credit show up that we have jointly and will a paper trial show up that shows I am using some of the line of credit as a down payment? 

Thank you kindly in advance for any response.


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## takingprofits

KollaC said:


> My understanding is that for a downpayment you cannot borrow from your line of credit.


If the LOC is in your name, and you disclose the source of the downpayment so the lender can factor it in to the qualification process there would be no problem. As long as the down payment comes from your own resources (which includes your access to credit) it is allowed.

I personally did once lend my mother some money which she then used for a down payment. It was never disclosed and never discovered. The chances of being discovered and questioned would increase if the money appeared in an account shortly before the mortgage application....


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## FrugalTrader

How are you pre approved for a mortgage without any credit? Is it based on your son's credit?


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## lb71

I wouldn't recommend this route. Rent and build up a downpayment with the savings. Just because interest rates are low does not mean this will be your only chance to buy a home. If interest rates eventually rise, will you be able to afford the house? If so, then interest rates are not the issue. Take the time to also build up your credit rating. Remember, this is going to be a big purchase and a lot of responsibility. You'll be surprised at the extra costs of home ownership.

But if you are going to do it make sure you can afford the extra payments for your LOC.


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## mrcheap

I would also caution against going the LOC route. Lenders do NOT like to see sudden large deposits, and they'll definitely want to know where it came from. As you say, often mortgages won't allow the down payment to come from a LOC. Don't try to trick them, mortgage fraud is no fun.

I agree with ib71: it isn't like there's a once-in-a-lifetime buying opportunity right now. Wait the 8 weeks, keep renting, save up a down payment. I'm suspicious that the market is still trending downwards, so you might get a better deal by waiting (I'm not guaranteeing this - just my feeling).

Often real estate agents encourage buyers to only look at the mortgage and compare this to rent. I've had friends who are shocked when they move into the property and have to start paying utilities, property taxes, insurance, maintenance. It all ends up costing MUCH more than they expected (so you don't want to be in a situation where you can JUST afford it - leave yourself some wiggle room).


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## iherald

I'm not sure what the market will hold. But, for estimate sake I'm figuring that my house expenses (when I buy a place) will be about equal to my mortgage payment. So if I'm paying $1300 a month in a mortgage payment, I've figured that I'll pay another $1300 in taxes, heat etc. 

If you know anyone in the neighbourhood you'd like to move into (in a similar size house), I might ask them what they usually pay for all house expenses other than mortgage. 

I agree with the comment that often people say "I pay $1200 for rent and my mortgage will only be $1300, I can afford that" but not realizing the extra costs involved with owning.

Again, take all that with a grain of salt as I am currently a renter.


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## FrugalTrader

iherald said:


> I'm not sure what the market will hold. But, for estimate sake I'm figuring that my house expenses (when I buy a place) will be about equal to my mortgage payment. So if I'm paying $1300 a month in a mortgage payment, I've figured that I'll pay another $1300 in taxes, heat etc.
> 
> If you know anyone in the neighbourhood you'd like to move into (in a similar size house), I might ask them what they usually pay for all house expenses other than mortgage.
> 
> I agree with the comment that often people say "I pay $1200 for rent and my mortgage will only be $1300, I can afford that" but not realizing the extra costs involved with owning.
> 
> Again, take all that with a grain of salt as I am currently a renter.


Great point iherald, the KollaC should take note of extra expenses such as property tax, insurance and maintenance. Property tax is typically around 1% of the assessed property value / year, home/fire insurance ($400-$800/yr) and maintenance can vary depending on the condition of the house.


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## Ben

I would approach with caution. Overall, it seems this is not really the time for you to buy. Much better to rent and save up the downpayment.

You mention other money that will be available in 8 weeks? Without being too nosy, this would have to be a fairly significant amount of money (at least 10% of the value of the house) to change my view that is not a good time for you to be buying. There seems to be a lot of risk in the equation. Different strokes for different folks though.

I am also deeply suspicious that the unleashing of pent-up demand from the winter and cheap interest rates is masking some underlying issues in the economy that will tend to trend house prices down in the coming while. Again, just my opinion.

This dream house is probably not one-of-a-kind. There will be others that come along when you are fiscally prepared (perhaps in 8 weeks)?

And finally, affordability...

You seem to infer that cheap interest rates are one reason why this house is affordable right now. Like lb71 mentioned, if you can't afford the house with interest rates at 7%, then the interest rate is not the issue.

Fixed (relatively) costs of home ownership (partial list, please add what I miss):
_Mortgage payment_. 
_Property tax_. 1% is a good approximation. On 300k house, $250/month.
Insurance. $35-70/month.
Utilities. Gas, water, electricity, water heater rental. $175-400/month.
_Maintenance_. Could be 0.5% of house value in a house in good condition. $125/month.
The above items add $585-$845/month, on top of the mortgage payment.
_One-time, up-front closing costs_. Lawyer, land transfer tax, etc. It's been some time since we bought our house, so I can't rattle off the exact list, but I recall it adding up to $2-3k.

Variable costs:
_Furnishings_. This is enormously expensive, especially in the first couple of years of owning the house. Includes big ticket items like couches and tables, and all the countless small items like shovels, lawn mowers, and garden hose that together, add up to a lot of money.
_Home improvement_. There are very few houses that look exactly the way we want them to when bought. I've added a deck, A/C, and a lot of gardening. This kind of stuff is largely discretionary (not a must), but it is spending you are likely to do as part of the new lifestyle in a house.

Furnishing and Home Improvement are hard to quantify, and will be different for everyone, but they significant costs of the "lifestyle" of owning a house. 
I've tracked our expenses since moving into the house, and it is amazing to look back at how much we spent in the first couple of years of owning the house, and how much less we spend now. There are so many things that need/want to be purchased to fill that great big empty space!


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## Shayne

*Call your bank!*

Call the bank that prea pproved you and explain the situation to them. Better to have full disclosure up front than have the purchase fall apart near your possession date. This could cause all kinds of issues. They will be able to tell you if you will be able to use the LOC as a down payment and still debt service properly. 

I may get some harsh comments on my next suggestion, but it is just an option for you not a recommendation. That is my disclaimer! 

You can also talk to Scotia Bank about their free down payment product. The rate is 5.25% (Effectively 4.03% considering you are giving 5% to put down)

With rates well under 4% the rate may be high, but you have to put it into perspective. Last year at the time you would have been paying more for a home and the best 5 year rate was around 5.59%

I am curious to see the users feedback on this.


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## mfd

KollaC said:


> My question is : Will the mortgage lender be able to see or trace that $ 7 000 back to my line of credit? My understanding is that for a downpayment you cannot borrow from your line of credit.


My fiance had received part of her inheritance from her father which she used as her portion of the down payment. Part of of the process required her father to sign a letter stating that the money was gifted and would not need to be paid back. 

Part of the mortgage process required us to send in a few bank statements as well. From what I remember about the process they don't go crazy tracking cash flow but if they do notice something they'll want to know about it.


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## KollaC

Thank you kindly for all the responses and good advice. You guys are great !



Ben said:


> You mention other money that will be available in 8 weeks? Without being too nosy, this would have to be a fairly significant amount of money (at least 10% of the value of the house) to change my view that is not a good time for you to be buying. There seems to be a lot of risk in the equation. Different strokes for different folks though.
> 
> And finally, affordability...
> 
> You seem to infer that cheap interest rates are one reason why this house is affordable right now. Like lb71 mentioned, if you can't afford the house with interest rates at 7%, then the interest rate is not the issue.
> 
> Furnishing and Home Improvement are hard to quantify, and will be different for everyone, but they significant costs of the "lifestyle" of owning a house.
> I've tracked our expenses since moving into the house, and it is amazing to look back at how much we spent in the first couple of years of owning the house, and how much less we spend now.


I have about $ 40 000 tied up outside the country that needs to come my way in the next couple of weeks from family members that lives back in my home country still. I know it will be here in hopefully less than 8 weeks, I am worried that this home might sell before my money gets here. Thats why I was thinking to try and go for the very short term with my LOC.

About my no credit score : I used for many years now my ex husband's credit card to which I had my own credit card under his name and managed that very well ( it had a $ 27 000 credit limit on it) I could show at least 4 years of managing that account well by making montlhy payments on time. I thought that would have shown up for me towards my credit score. Wrong ! Now I have my own credit card for the last 2 months but the bank tells me I need at least 6 months of having my own card to prove to them I will make payments on time. 

What's interesting is that when we were pre approved my line of credit that I still jointly have with my ex husband ( I make all the payments as its my own debt) did not show up when they investigated me for possible monies that I owe. 

Thats why I was wondering if I loan more on that LOC will it then show up ? as it didnt show up in earlier searches. 
I do agree to be upfront in declaring my intentions its not worth it to lie about where the money is coming from.

I am also going to keep a log about every cent we put into that home, the idea is to upgrade it over time as its old and tired but has tons of potential.

Thank you again for everyone who took the time to give advice and share good tips.


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## Mike H.

CMHC will allow downpayments from non-traditional sources for loan to value ratios up to 95%:

Non-traditional Sources: 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% sweat equity and lender cash back incentives.​
Lenders have their own guidelines. For the lowest rates, most lenders don't like to see borrowing from sources OTHER THAN loans secrued by property. So if the line of credit is secured against a home, it's fine. If it isn't; it may be problematic. In all cases, the required minimum monthly payment on the line of credit would be included in calculating your debt service ratio.

If you are expecting money in 8 weeks that will allow a large enough down payment to avoid mortgage default insurance completely; that would be a good idea.


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## OhGreatGuru

IMHO you are setting yourself up for trouble.
1. Why your ex husband would still have a joint LOC with you is beyond me, but that's perhaps another discussion.
2. Yes, if you borrow from it for your downpayment the financial institution can track it. Furthermore you are legally obliged to declare all debts when applying for this mortgage. Failure to do so is at least misrepresntation if not fraud, and they could cancel your loan if they find out about it afterwards.
3. Since the mortgage company has to be told, I don't quite know what you are gaining, because they will then consider it loaned money you owe, not cash savings.
4. My understanding in our part of the country is that if the downpayment money has not been in your accounts for 6 months they will ask you for evidence of where it came from, and it has to be in your hands at least 30 days before closing in all cases. 
5. Regarding expected money from abroad, there can be many delays in the process. Also banks are increasingly suspicious of phoney"gifts" from relatives that are actually loans, and may require affidavits from your relatives.

I would advise you to cool your heels for awhile.


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