I heard that I can buy property with “no money down” … is that true? Sure it is… and it can be done in many ways. Here are the three most common: Oklahoma Mortgage: Named after its place of origin, this technique is illegal in Canada. Basically, you find a seller willing to artificially inflate the sale price of a home above fair market value, then kick you back the difference. For example, say the fair market value of a home is $270,000 and you have no downpayment. You enter into a written agreement with the seller to buy the home for $300,000 with either a secret side agreement that when the deal closes he’ll kick you back $30,000, or a fake $30,000 deposit shown on the Offer to Purchase. Either way, the phantom $30,000 in essence becomes your downpayment, so it appears that you have put 10% down. The lender thinks he is financing $270,000/$300,000 or 90%, but in essence he is financing 100% of fair market value! Lenders try to prevent such fraud in two ways. Firstly, they ask for confirmation of downpayment by both checking your bank account balance and obtaining a copy of the deposit cheque. Secondly, they obtain an appraisal to assess market value, though most appraisers, usually out of apathy, will just fudge their numbers to make it appear that the home is actually worth what the Offer to Purchase reads. Vendor Takeback: Some sellers will lend you the money you need for the downpayment by registering a second mortgage on the house at closing. For example, say George wants to buy Saddam’s palace for $1,000,000. George has $100,000 down, but George’s bank will only lend him $850,000, leaving him short $50,000. So Saddam, wanting to sell the damn palace, lends George the $50,000 he is short by registering a second mortgage for this amount on closing. However, one has to wonder why a vendor would be willing to lend his own money to liquidate a property, unless there is something suspect going on. 100% Equity Financing: Some lenders offer 100% financing programs but charge you high interest rates and add exhorbitant fees to the mortgage for the privilege. EXPERT MORTGAGE can offer you this type of financing if you really need it, but you are best off begging, borrowing, or stealing the money and coming up with at least 5% down.
Posted on: Tue, 15 Oct 2013 23:01:48 +0000
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