less than 20% down payment for investment property

  • Ychx

    Status: Forum Member

    Posts: 6
    Joined: 6 May 2012
    From:

    Hi,

    I am thinking of purchasing a investment property in B.C with 5-10% down payment plus CMHC insurance. Legally I will call this house as my main residence but NOT actually move in.

    I will get some legal trouble if I do above?

    Thanks,
  • bizaro86

    Status: Forum Member

    Posts: 1,013
    Joined: 29 Jan 2008
    From: Calgary, AB

     If you know something is illegal (you're planning to lie on an application!) why would you come on a public forum and ask "how likely am I to get caught?"
     
    Lying to someone to get money from them is fraud. You shouldn't do this.

    Michael
  • Ychx

    Status: Forum Member

    Posts: 6
    Joined: 6 May 2012
    From:

    My real question is if I move in myself and after how long I can move out to rent it to somebody else? Is there any legally defined duration I have to live in that house before rent out?
  • invst4profit

    Status: Forum Member

    Posts: 2,045
    Joined: 30 Aug 2007
    From: Kingston Ontario

    In Ontario it is generally 1 year you must reside in the property however if at time of mortgage application you are intending to move out and rent it could still be considered mortgage fraud.

    The key is intent. As you are attempting to circumvent mortgage regulations to avoid having to pay 20% down on a investment property it is fraud. 
    It is regularly done but possibly not by any investors on this forum. :)

    The question is degree of risk and penalty if caught.

    Greg

    "An individual must enforce his own meaning in life and rise above the perceived conformity of the masses" (Anton LaVey)

      
  • bizaro86

    Status: Forum Member

    Posts: 1,013
    Joined: 29 Jan 2008
    From: Calgary, AB

    invst4profit
    In Ontario it is generally 1 year you must reside in the property however if at time of mortgage application you are intending to move out and rent it could still be considered mortgage fraud.

    The key is intent. As you are attempting to circumvent mortgage regulations to avoid having to pay 20% down on a investment property it is fraud. 
    It is regularly done but possibly not by any investors on this forum. :)

    The question is degree of risk and penalty if caught.
     

    I think there are two groups. Those who have never done that, like myself, and those who have done so and are smart enough not to talk about it in a way that leaves a permanent, public record like an internet forum.

    Michael
  • housingrental

    Status: REIN™ Member

    Posts: 4,647
    Joined: 11 Oct 2007
    From: Waterloo

    Hi Michael
    I think you forgot the third group
    Those that are dumb enough to do it and dumb enough to post about it on a public, traceable, forum
    :)
    Adam Hoffman - Hoffaco Property Management - Waterloo - Rent / Consult / Manage - http://www.hoffaco.com
  • invst4profit

    Status: Forum Member

    Posts: 2,045
    Joined: 30 Aug 2007
    From: Kingston Ontario

    The only real dumb ones are the ones that get caught.

    Which begs the question: has anyone actually heard of someone getting caught/charged with fraud.  

    Banks and mortgage companies do not want to turn away investors so it's most likely treated with a wink and a nod. Mums the word. After all the finance business isn't that honest to begin with. 

    Greg

    "An individual must enforce his own meaning in life and rise above the perceived conformity of the masses" (Anton LaVey)

      
  • Sherilynn

    Status: REIN™ Member

    Posts: 1,891
    Joined: 23 Oct 2007
    From: Edmonton

    Actually there is a third group of which I am a member: those who intend to live in the property for at least a year and then find a great deal on another property and end up moving sooner.

    Again, intent is the real key here.  In our case we moved a whole house including a baby and a preschooler.  We did not intend to move again quickly, and I don't think anyone would doubt our intent.

    However, moving in with a suitcase and an air mattress is entirely different, and then it wouldn't matter if you stayed for a night or a year.  It would be obvious that you did not intend for it to be your personal residence and it would be mortgage fraud.

    And yes, you can get into serious trouble.  There was a real crackdown on this a year or so ago and it was all over the newspapers.
    Regards,
    Sherilynn Milsom
    , Gold REIN member, REIN Advisory Board member, Repeat "Top Player,"
    & Michael Millenaar Memorial Leader of the Year
    Helping you to attain freedom, build relationships, and make memories.
    Please Visit My Website: QDHomeQuest.com
    Email Sherilynn@QDHomeQuest.com
      
  • bizaro86

    Status: Forum Member

    Posts: 1,013
    Joined: 29 Jan 2008
    From: Calgary, AB

    Sherilynn
    Actually there is a third group of which I am a member: those who intend to live in the property for at least a year and then find a great deal on another property and end up moving sooner.
     

    The original post specifies he's not planning on moving in at all. (The NOT was in capital letters).

    What you're describing is completely different, and legitimate. I did not intend to impugn anyone following the rules, but merely wanted to emphasize that following the rules is the right course of action. And those who don't follow the rules would be wise not to talk about it in public.

    Regards,

    Michael
  • Sherilynn

    Status: REIN™ Member

    Posts: 1,891
    Joined: 23 Oct 2007
    From: Edmonton

    bizaro86

    The original post specifies he's not planning on moving in at all. (The NOT was in capital letters).



    Yes, but then he posed the question 'for how long would he need to live in the place before it was not considered mortgage fraud.' 

    My response was more related to that, with the answer being that if he moved in specifically to put low money down on an investment property then it is fraud regardless.
    Regards,
    Sherilynn Milsom
    , Gold REIN member, REIN Advisory Board member, Repeat "Top Player,"
    & Michael Millenaar Memorial Leader of the Year
    Helping you to attain freedom, build relationships, and make memories.
    Please Visit My Website: QDHomeQuest.com
    Email Sherilynn@QDHomeQuest.com
      
  • TonyMandrique

    Status: Forum Member

    Posts: 177
    Joined: 16 Dec 2008
    From:

    For the comfort of mind, I'd be transparent with my intention IMHO. Good luck.

    Tony Mandrique
    Fortune Homes Corp.

    Phone & Fax: 1-888-989-1689 (24/7 voice mail)
    E-mail:  tonym@fortunehomescorp.com

  • bizaro86

    Status: Forum Member

    Posts: 1,013
    Joined: 29 Jan 2008
    From: Calgary, AB

    Sherilynn
    Yes, but then he posed the question 'for how long would he need to live in the place before it was not considered mortgage fraud.' 

    My response was more related to that, with the answer being that if he moved in specifically to put low money down on an investment property then it is fraud regardless.


    Your post talked about a "third group" of which you were a member. But the two groups I was describing were "people who don't talk about not moving into their rentals after they've called them personal residences." 

    People don't talk about that because they either don't do it or don't want to get caught. 

    You're in the first group, people who don't lie on mortgage applications. You're talking about something that sounds similar, but is different based on your intent. 

    You are of course absolutely right that the specific amount of time isn't the governing factor in whether that's allowed or not, it has to do with intent.

    Regards,

    Michael 
  • invst4profit

    Status: Forum Member

    Posts: 2,045
    Joined: 30 Aug 2007
    From: Kingston Ontario

    The reality is that a very large number of investors begin by purchasing a home with a basement suite having the intent of renting the entire home in the not too distant future and purchasing another for themselves.
    This was the case before the mortgage rule changes and will continue to be the case.
    Likely no harm no foul as far as financial institutions are concerned. They will be more than happy to hold the mortgage on your next home too.                  .

    Greg

    "An individual must enforce his own meaning in life and rise above the perceived conformity of the masses" (Anton LaVey)

      
  • DBrown

    Status: Forum Member

    Posts: 17
    Joined: 15 Sep 2010
    From: Calgary, AB

    My wife and I are currently in a similar situation. We bought our first house three years ago which has a suite. Our intent was to rent out the basement while living upstairs. In two more years when mortgage renewal is due, we want to buy our second property. With that property we want to do the same. Live in it for up to five years then move on. It will be our primary residence until that time. All that being said, what are we going to be required for a down payment. 20% or 5 -10%?
  • Sherilynn

    Status: REIN™ Member

    Posts: 1,891
    Joined: 23 Oct 2007
    From: Edmonton

    If your primary intent is to buy the new home as your principle residence, it shouldn't matter that eventually you will turn it into a rental.  This is much different than asking "for how long must I live in this place before CMHC will consider that my intent was for it to be my personal residence."
    Regards,
    Sherilynn Milsom
    , Gold REIN member, REIN Advisory Board member, Repeat "Top Player,"
    & Michael Millenaar Memorial Leader of the Year
    Helping you to attain freedom, build relationships, and make memories.
    Please Visit My Website: QDHomeQuest.com
    Email Sherilynn@QDHomeQuest.com
      
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