25% downpayment!?

[primal]

Hello all, I hope you are all enjoying the glorious summer despite the lack of rain!

I registered here because..
1. I am a home owner in the process of selling. My brother bought this house 5 years ago with no downpayment at 6%int.
2. I have made a conditional offer on a small place that has more land to grow my trees and shrubs.. I am a landscaper and this compliments my services.
3. The down payment required for the new place is 25% + a cosigner.
4. At 20-25% down payment I see why i've only had one visitor in the past 5 weeks!?
5. I just need to rant and understand why the powers that be opted to demand higher down payment instead of reducing what people purchase with their buying power.. for example, the old rule for renting is don't spend more than 25% of your income. Yet when it comes to buying, bank will allow you to spend up to 40%... putting more people in a situation of difficulty when hard times come(and i do believe we have not seen the worst yet).

So I'd really like to hear from some finance savvy people as to why making purchasing a house more difficult for lower middle income individuals/families/first time buyers makes more sense than a reasonable down payment, lets say 10%, but also reducing the maximum buying power.

[Bamboo_Shoots]

That's strange, I am also located in Quebec and the minimum is 5%, 25 years mortgage. Maybe one of the Mortgage savy people can answer that?

Unless you go over $1M, then the rules change.

Good luck!

[bairdgoodwin]

I thought you only needed a 25% down payment for a second property, like if you had a house and were trying to buy a rental property, or a mortgage on a cottage and a house at the same time (different properties)

[Shwa Girl]

So I'd really like to hear from some finance savvy people as to why making purchasing a house more difficult for lower middle income individuals/families/first time buyers makes more sense than a reasonable down payment, lets say 10%, but also reducing the maximum buying power.

People are overextending their credit and the rules were put in place to prevent a high default in loans.
Remember the US situation....

When it comes to taking risks with mortgages and investments, the Canadian government is boring and cautious. This time boring is good. Europe and the US are still digging out from years of financial mess.

Give me boring and cautious Canada any day! So, 25% down is safe and boring.

[MortgageQueen]

Hi Primal,
Why on earth would you be required to put 25% down AND a co-signer???!! Are you underage? This is not making sense to me. . . ?

[primal]

People are overextending their credit and the rules were put in place to prevent a high default in loans.
Remember the US situation....

Yes and thats exactly why banks should not be lending as much as they are willing to.

[primal]

Hi Primal,
Why on earth would you be required to put 25% down AND a co-signer???!! Are you underage? This is not making sense to me. . . ?

I've been in school fulltime for the past 2 years, so they took my 2012 landscaping income so far and did a projection for the year including the winter work i do restoring antiques. They also have a signed letter from my brother stating that since he bought the house 5 years ago i have made all the mortgage payments and that at the sale of the house the balance after paying off the mortgage is mine for the new mortgage. The new house will be less than half the present mortgage payments.. I don't know maybe i am luck i got the mortgage at all?

But it was my understanding that the rules have become much tougher anyway and 5-10% was truly a thing of the past... I am still baffled at having a cosigner that i would still be required to do 25%..

[Carlotta]

The minimum down payment has been increased from 15% to 20%, but you can still get a higher ratio mortgage insured through CMHC or Genworth so I'm not sure why you are being asked for 25%, unless they are considering it an income property, which they very well could be. And the reason you probably need a co-signer is because you do not have enough income to support the payments. Quite frankly, a letter from your brother stating that you have made all of the payments for the past five years doesn't mean much to a lender.... anyone could write that letter and there is no proof you actually did that (I'M not doubting that you did, I'm just saying that there are a lot of dishonest people out there!). So on paper you do not have the income to support the payments. Generally, when I am preparing clients for a mortgage, the lender requires at least the last two years Notice of Assessment. And since you are self employed, you would probably be required to provide the last THREE years. If you stop and think logically, would YOU lend someone money who cannot prove that they make enough income to support the payments or would YOU lend someone money if they were starting a new business venture? What if the business fails? Or would you prefer to lend money to someone who already has a proven track record? Sometimes we need to step back and look at both sides of the equation.

But you need to go and talk to your lender and ask these questions. And go to a different lender, or a broker and ask these questions. Make sure you know what you are getting into before taking such a big step.

[matrix82]

When I went to the bank to try to get a mortgage, I was told that I needed to have at least 20% of a downpayment. I also needed to pay off all our student loans before we could qualify. Even though both of us are working, and I get a housing allowance through my work of $750 per month which can be only be used on housing.

We can't pay off our student loans at the snap of a finger, we've been paying them down, 5 years for my partner, and one year for myself, never missed a payment and making extra payments when possible. It will take us around 7 years to pay off all our student loans.

I just don't get it, we qualified for an apartment at $940 a month, but can't qualify for a mortgage with lower payments.

We were looking at around $125,000 for a house, houses in this area run from $120,000 to $300,000.

[MortgageQueen]

I'm guessing there was isssues for your cases with CMHC and you not qualifying. . .which is why you were probably asked for higher downpayment.
Matrix82, You can PM me if you want some help with your situation.

[primal]

The minimum down payment has been increased from 15% to 20%, but you can still get a higher ratio mortgage insured through CMHC or Genworth so I'm not sure why you are being asked for 25%, unless they are considering it an income property, which they very well could be. And the reason you probably need a co-signer is because you do not have enough income to support the payments. Quite frankly, a letter from your brother stating that you have made all of the payments for the past five years doesn't mean much to a lender.... anyone could write that letter and there is no proof you actually did that (I'M not doubting that you did, I'm just saying that there are a lot of dishonest people out there!). So on paper you do not have the income to support the payments. Generally, when I am preparing clients for a mortgage, the lender requires at least the last two years Notice of Assessment. And since you are self employed, you would probably be required to provide the last THREE years. If you stop and think logically, would YOU lend someone money who cannot prove that they make enough income to support the payments or would YOU lend someone money if they were starting a new business venture? What if the business fails? Or would you prefer to lend money to someone who already has a proven track record? Sometimes we need to step back and look at both sides of the equation.


But you need to go and talk to your lender and ask these questions. And go to a different lender, or a broker and ask these questions. Make sure you know what you are getting into before taking such a big step.

I will double check with the bank to see if they are looking at the property as an income property, it is zoned agriculture so perhaps telling them I grow trees and shrubs(also part of my income) made them see it that way.
You are right about the letter, however we did stipulate that proof from the other bank is available on request, I deposited directly at the counter so my signature is there for every single payment... just in case.
I didn't really have time to do this whole process properly, I saw the listing and within a week had my house up for sale with the same agent handling the sale of the house i put a conditional offer on, once my offer was accepted i had 10 days to get approved... actually took 11, but it worked out

[primal]

I'm guessing there was isssues for your cases with CMHC and you not qualifying. . .which is why you were probably asked for higher downpayment.
Matrix82, You can PM me if you want some help with your situation.

I will find out soon.
My situation aside, if you don't mind me asking, how do you see the system as it is? Is it simply allowing those with more capital to continue to buy property(s) that could be beyond their means in the event of sudden changes in their incomes while severely limiting lower/middle income folks from getting their first home?
For example, my house is up for sale at 70k, that means a young couple must come up with around 14k.. thats a heck of a lot of money to dish out.. I know i'd have to think twice about it for sure.

[primal]

When I went to the bank to try to get a mortgage, I was told that I needed to have at least 20% of a downpayment. I also needed to pay off all our student loans before we could qualify. Even though both of us are working, and I get a housing allowance through my work of $750 per month which can be only be used on housing.

We can't pay off our student loans at the snap of a finger, we've been paying them down, 5 years for my partner, and one year for myself, never missed a payment and making extra payments when possible. It will take us around 7 years to pay off all our student loans.

I just don't get it, we qualified for an apartment at $940 a month, but can't qualify for a mortgage with lower payments.

We were looking at around $125,000 for a house, houses in this area run from $120,000 to $300,000.

A friend of mine suggested going to a mortgage broker to find you a willing lender... best of luck!

[ING_rep]

I like the new rules, they protect us from ourselves. I bought my condo at 23, and they were willing to lend me 325k. I had just graduated and had been working for 1 month to my new job (and dont make 100k a year lol).

I thought it was dangerous to lend this much money to someone who had just started their adult life.

[primal]

I like the new rules, they protect us from ourselves. I bought my condo at 23, and they were willing to lend me 325k. I had just graduated and had been working for 1 month to my new job (and dont make 100k a year lol).

I thought it was dangerous to lend this much money to someone who had just started their adult life.

I do see the new rules as trying to be safer but really all they are asking is for one to put MORE money down(which just means less in your pocket) but still allowing one to buy at a total amount that is beyond what i consider to be a safe amount(and i'm not even that conservative!). Even with the new rules you could still buy that 325k condo, you'd just have to have a bigger down.. just think of all the other stuff you could have bought had you not been allowed to buy more than a 200k condo LOL. The new rules IMO are just a big hit to lower/middle income earners who will end up renting a house from the guy with more capital for longer while trying to save up enough for a down.
Just out of curiosity do you still have your condo? hehe.