Buying with 5% down for a relative or as secondary family home

[Dragonfly]

Does anyone know about getting a 5% down mortgage if you agree that it is a secondary family home or you are planning to allow a relative to occupy it as a secondary family home or rent free?



I've heard that this a good way for investors to be able to buy 3 properties for 5% down even though they intend to rent them out.



Is this a grey area that should be avoided or, as I've been told, is it a CMHC loophole that they probably even know about that has been used for the past 8-9 years?

 

[bizaro86]

This isn't a grey area at all. You'd be lying to cmhc and your lender, which is certainly wrong and most likely mortgage fraud. I would reconsider doing business with anyone asking you to lie on an application

 

[Sherilynn]

If you say you are going to have a family member live in it but you do not, then it is fraud and CMHC prosecutes offenders.



Your intentions matter. If your intention is to rent out the property and you place a family member in it for a few months just to skirt past the CMHC rules, it is still fraud.



This is not a grey area. It is black and white. Whoever is giving you the above advice should be removed from your team.

 

[Thomas Beyer]

I have also heard of people stealing apples at Safeway and getting away with it.

 

[Sherilynn]

[quote user=ThomasBeyer]I have also heard of people stealing apples at Safeway and getting away with it.






Exactly. Safeway knows it happens but as long as they don't prosecute then people assume it's okay.

 

[Hutchym]

Hello,



I saw a article in a magazine not to long ago about this strategy. The article basically stated that if you were to purchase a new home to move into and "seriously attempt" to sell your original property you would end up with two homes. However I understand it that you must show that you are attempting to sell off your original property to prevent fraud. Once this second home increases in value enough ( assumption) then you remortgage with 20% equity. I am not sure if its legal to rent it out while attempting to sell.



Mike

 

[Sherilynn]

It shouldn't matter what you do with your original home. It only matters whether or not the new home (being newly CMHC-insured) is being used as one of your family's residences (if that was the promise you made to CMHC).

 

[Rickson9]

There's no point trying to 'work the system' to make money, especially when an individual can make a ton of money through legit, legal means anyway. IMHO.

 

[RobMacdonald]

There is no requirement to sell you original home if you are buying another one at 5% down. You just have to qualify with the existing property being treated as a rental.



And it has to make sense! If you are a family of 5 and claim that you are buying an apartment as a new residence, it's not going to happen. BELIEVE ME, I've seen brokers try this before.........



There is also no rule to how long you need to live in a property before moving out and buying a new property. What can happen is that CMHC or Genworth my not approve the new purchase at 5% down, could come back at 10%, or not at all.



It's also possible to approve the first one through CMHC, and the second one through another lender and through Genworth. The exposure to both insurers remains minimal, and you would be less likely to have the insurer claim your risk exposure is to high for them.



What both insurers are not willing to do, is allow you to create an investment portfolio with 5% in each property. So you might accomplish this once, maybe twice, if the story makes sense, but your success in being approved won't last long.



I've had a client that bought 3 properties in about 6 months with 5% down. He bought a house, than got transferred with his job. Rented out the first and bought in the city he was transferred too. Ended up with serious location issues in the house he bought, values had dropped (probably bought too high in a hot market) and he couldn't sell without losing $$. So he was approved to buy a third one. Happened to have access to the cash, great job, and credit history.



So it's possible.