House down payment

[GomerPile]

Have purchased 3 homes, we have done 20% each time. Never sold, currently rented and want to use the future HELOC's to pay cash on our personal house.

[fundmark19]

I'm on my 4th house all 5% down still own 2 as rentals and one is my residence. I was going to put more down on first house but since my gameplan was to live in it and move on the more interest you pay the better for your taxes on a rental!

[squiggs96]

Originally Posted by lorenavedon

I'm really interested in the %35 down then get a HELOC route. I already PMed WinnipegFan about it and got good info but was wondering if anyone else has done this to purchase a place or if they had any other insights. Seems like an easy way to save in volatile markets. If you feel the stock market is currently too risky and being in cash earns almost nothing, I'd rather put everything I have into a home, even if it's %50 with a HELOC. Zero savings... then if you hit a few months of tough times you can take money out IF needed to survive, but if times are good you can continue to dump in as much as possible and basically earn %2 to %2.5 (which is what you'd be losing holding it in a savings account and keeping a mortgage) (Please no "put your emergency funds into stocks or bonds" advice) Thanks

eg. 200k savings (%1.5)

buy 400k place
260k HELOC. (%3.5)
after purchase balance - 0 savings and 200k on HELOC %3.5

vs (%20 down = 80k) 320k mortgage @ %3
plus 120k savings @ %1.5

I have an NBC All In One account, which basically acts as a HELOC. I took possession in November 2008, so I was able to only put down 25% (now most require 35%) and my interest rate is prime. These are great if you are fiscally responsible and can understand that for a long time you won't have any "money" in the bank. I'd rather ever cent I put into the bank drops my interest payment, rather than having an amount in chequing, savings and a mortgage payment. It worked really well for me in the first five years I had it, as my job paid a low salary, but high bonuses. My compensation was about 60% salary and 40% bonuses, so it was nice that every few months when I got my bonuses, they immediately went against my principal.

That said, I'm looking at selling my townhome and buying a house worth about 3 times the value of my current place. I will likely go with a mortgage as the rates are much cheaper than the HELOCs, and maybe after the first 3-5 year term, I'll go back to the current type of account. It will depend on rates, as the HELOCs are all at prime + 0.5% right now.

[puckluck2]

Originally Posted by fundmark19

I'm on my 4th house all 5% down still own 2 as rentals and one is my residence. I was going to put more down on first house but since my gameplan was to live in it and move on the more interest you pay the better for your taxes on a rental!

The old rules made it so easy to own a rental but now you have to put 20% down so pretty much only people with at least $70,000 laying around can now buy a rental.

Kind of sucks as I was hoping to buy another rental.

[fundmark19]

Yes but if you live in a house to start with you qualify for the 5 percent. So you buy house live in it for a year buy new house and turn old one into rental

[GomerPile]

Originally Posted by fundmark19

Yes but if you live in a house to start with you qualify for the 5 percent. So you buy house live in it for a year buy new house and turn old one into rental

I believe under the new rules you wouldn't, as you can only have 1 CMHC insured mortgage in your name at a time now.

[fundmark19]

Yes but if you live in a house to start with you qualify for the 5 percent. So you buy house live in it for a year buy new house and turn old one into rental

[fundmark19]

Cmhc is not the only player in town! You gotta diversify if you want to be successful in investing

[cam_wmh]

Originally Posted by Realtor 1

Strongly disagree and it is quite a bold statement on your end.
What if I have enough to come up with 10-15% but choose to go with 5?
Im still paying CMHC regardless so the only real savings is the interest, which is nothing (Investors group went below 2%)

Travis,
What difference in interest over the life of the mortgage/term are you paying between your choosing of 5% vs 15% vs 20%.

Why did you choose the lower down payment?

[Wormius]

The conversation of down-payments is relative to when you bought your house. For us, 20% was only $50k, now that 20% is almost $100k. I can definitely see the apprehension of putting $100k down on a house.

[DoubleF]

I put 10% down when I purchased my condo 2.5 years ago. At least, I think it was around that after the 3-4% CMHC fee. The place was a good one and I decided it was a good hedge on the market. I don't see a reason for houses to go down drastically. We have the biggest batch of the job creation in Canada and we're not even talking oil sands boom yet either. Finance has steadily been growing and logistics is prepping for a big push with the logistic centres around the airport.

Rental availability has been pretty bad and rental prices are making house purchases a more readily discussed topic. Do your research and if the price is reasonable, I'd pull the trigger at 10% and sit on the remainder cash while on an accelerated repayment plan or something.

I'm aiming for 20%+ for my next home. But less is ok on a first purchase. I wouldn't go below 10% though.

[DownhillGoat]

Originally Posted by Tyler

Wow.. you people putting 5% down on a house. Every financial expert would tell you that this is the #1 sign that you're not ready for home ownership.

Complete and utter BS. As stated before, I didn't go 20%, and went with a 35 year term (oh noes!). 4 years into the mortgage I've cut it down to 15 years. Not sure how that's not "ready to own a home". If you can barely scrape together 5% for a downpayment, now that might be a bad sign, but there's a vast array of reasons someone might go 5%, and that certainly doesn't mean that everyone that does isn't ready to own a home.

[Hugh Jahrmes]

I'm in a similar situation to kunk. 10% down, 30 year mortgage. Two years later I have 14 years left at my current pace and we plan to accelerate each year as our incomes go up. There is a right situation for everyone, don't miss the boat because of something you read or someone told you.

[Travis Munroe]

Originally Posted by Canehdianman

I'd expect better information from a realtor.

CMHC fees are much lower if you put down 15% over 5%. About 1.5% lower (so on a 400,000 mortgage it would save you $6,000).

It sounds like you would like a realtor to agree with you - my point and belief stands.

I have $10,000 saved up for a down payment today.
I buy a 200k property with 5% down
I pay CMHC fees of roughly 6k
My mortgage is 196k and I start paying today. Perhaps knocking an extra $200 off each payment as I bought something I can easily afford but saving up the DP was the tough part.
OR
I have 10k saved up today,
I rent for the next 3 years while I save up another 30k
My rent costs me 1500 a month - $54,000 over the 3 years I managed to save my remaining 20%
I buy into the market and save my 6k on cmhc fees.

After 3 years from day 1
5% option and I own a property, have paid very little interest and have knocked a good chunk off with my diciplined investing of adding 200 to my payments.
20% option, I just bought a house, owe $160,000 on it but also spent 54k over the last 3 years renting. We are also assuming that prices have not gone up over this 3 year span in which this same 200k property might have really cost me 220 when I was ready to buy.

You tell me who is ahead.

[Travis Munroe]

Originally Posted by cam_wmh

Travis,
What difference in interest over the life of the mortgage/term are you paying between your choosing of 5% vs 15% vs 20%.

Why did you choose the lower down payment?

I personally chose the same route that fundmark speaks of. I buy properties based on value. I purchase with 5% down and use my extra cash for other investments.
It takes a year or 2 to have 20% equity in the property assuming you bought based on value and put extra money into your mortgage over the year or 2. Now that you have 20% equity, you go buy property 2 and rent out property 1. Repeat the exact same cycle.
I was forced to put down 10% on a new build I am in right now however I would have taken the 5% option if it was available.

Now this works for certain people - others prefer the safer and less hands on approach. There is no right or wrong way which this thread seems to want to answer. It is all about the individual and what works for them.

[stampsx2]

Originally Posted by fundmark19

I'm on my 4th house all 5% down still own 2 as rentals and one is my residence. I was going to put more down on first house but since my gameplan was to live in it and move on the more interest you pay the better for your taxes on a rental!

Sorry, i call bs. This all ended with the new cmhc rules in 2010. If there are players that will insure at 5% they would carry too much risk to make it worth it.

[Travis Munroe]

Originally Posted by stampsx2

Sorry, i call bs. This all ended with the new cmhc rules in 2010. If there are players that will insure at 5% they would carry too much risk to make it worth it.

Although it has become more difficult with time - what Fundmark said is not BS.

Certainly more difficult to go from 3 to 4 than it is 1 to 2 however very do-able.

[indes]

I just bought my first house last week! I bought from my parents and it worked out really well because they gave me 14% as gifted equity. It worked out for both of us because if they wanted to get full price for the house they would've had to wait for a buyer and pay a realtor. In the end I ended up getting 50,000 as a down payment but after the associated costs for them to sell to someone else (negotiating and realtor fees) they didn't lose nearly 50,000. I have an uncle in law who also sold to someone (not family) with gifted equity.

Maybe Travis can shed some more light on how it would work doing an arms length transaction with gifted equity.

[Yakbutter]

Putting down 5% o a 400k mortgage sounds asinine. So interest rates go up 1-2% and your mortgage goes up $500 a month...

I'm young and rent atm. My plan is to rent cheap (600-700$) a month, and keep saving until I can make a substantial down payment. Something like 40% down.

I don't really see the point of taking on a massive mortgage, when the bank interest, property taxes, CMHC insurance, house insurance and utilities are almost double what it costs to rent. I guess it would make sense if you have renters...but...ew.

[opendoor]

Originally Posted by Realtor 1

It sounds like you would like a realtor to agree with you - my point and belief stands.

I have $10,000 saved up for a down payment today.
I buy a 200k property with 5% down
I pay CMHC fees of roughly 6k
My mortgage is 196k and I start paying today. Perhaps knocking an extra $200 off each payment as I bought something I can easily afford but saving up the DP was the tough part.
OR
I have 10k saved up today,
I rent for the next 3 years while I save up another 30k
My rent costs me 1500 a month - $54,000 over the 3 years I managed to save my remaining 20%
I buy into the market and save my 6k on cmhc fees.

After 3 years from day 1
5% option and I own a property, have paid very little interest and have knocked a good chunk off with my diciplined investing of adding 200 to my payments.
20% option, I just bought a house, owe $160,000 on it but also spent 54k over the last 3 years renting. We are also assuming that prices have not gone up over this 3 year span in which this same 200k property might have really cost me 220 when I was ready to buy.

You tell me who is ahead.

Are cap rates in Calgary that high that a $200K condo would rent for $1500? That seems insane these days.

You also have to consider the non-mortgage costs of ownership which provide zero return. Property tax, condo fees, and insurance are likely at least $15K on a $200k place over 3 years.

Though I do agree with the general principle if we're talking about a disciplined person. As long as you're in a place where you can easily afford an interest rate spike, you are willing and able to throw extra money at the mortgage, and you can handle potentially being underwater on it for a period of time if prices drop, then a low down payment is fine and likely advantageous over waiting.

But again, that really depends on the price to rent ratio. In a place like Vancouver you can rent some places for far, far less than the ownership costs. I'm not even sure why anyone owns a rental property there.