Mortgage Application - Proof of Down Payment - LOC VS. Regular Bank Account

[Nir]

Hi All,

Is person A`s mortgage application really weaker than person B`s!?

Person A: LOC limit of 50K. current balance zero, meaning he can use LOC for down payment.

Person B: LOC limit of 50K. however current balance 30K because 3 months ago he transferred 30K from LOC to a regular bank account just in order to show a positive balance as proof of down payment.

THANKS.

 

[Thomas Beyer]

QUOTE (investmart @ Apr 10 2010, 06:26 PM) Is person A`s mortgage application really weaker than person B`s!?no .. but person B has real cash in his bank account which is what the bank requires !

Remember the golden rule: He who has the gold makes the rules !

You don`t have to like the rules .. but you have to play by them .. (or stay out of the game .. same as in basketball, hockey, soccer ..)

 

[RCrein]

Does strategy B work anybody? I would have thought that they would want an explanation of the debt. Wouldn`t they net out the cash with the debt?

 

[OlegP]

QUOTE (RCrein @ Apr 10 2010, 10:09 PM) Does strategy B work anybody? I would have thought that they would want an explanation of the debt. Wouldn`t they net out the cash with the debt?


That is the funny part - No, they don`t. They count $30K towards your assets, and add the payments you make on the $30K towards your Debt Service Ratio.

So while person A only has to move $30 into a bank account or GIC to become person B, the bank will only deal with person B.

The rule is the rule. Don`t overthink it! Just follow it!

 

[Nir]

QUOTE (OlegP @ Apr 11 2010, 11:13 PM) That is the funny part - No, they don`t. They count $30K towards your assets, and add the payments you make on the $30K towards your Debt Service Ratio.

So while person A only has to move $30 into a bank account or GIC to become person B, the bank will only deal with person B.

The rule is the rule. Don`t overthink it! Just follow it!

thanks for clarifying this. funny indeed.

 

[Sherilynn]

Reasonably accessible money in RRSP`s is also proof of downpayment.

We have used our RRSP mutual funds as proof of downpayment several times and have never cashed in any of them. The bank (or broker) just needs copies of current statements to proove that you have them as a cash equivalent. Then you may pay the downpayment however you wish.

Regards,
Sherilynn

 

[fumbrunner]

If it is a secured LOC and your debt servicing allows for it, you can use it for a down payment. I have done it a number of times.

 

[MonteDobson]

QUOTE (Sherilynn @ Apr 12 2010, 08:40 AM) Reasonably accessible money in RRSP`s is also proof of downpayment.

We have used our RRSP mutual funds as proof of downpayment several times and have never cashed in any of them. The bank (or broker) just needs copies of current statements to proove that you have them as a cash equivalent. Then you may pay the downpayment however you wish.

Regards,
Sherilynn
Hi Sherilynn,

We have done this on every qualification to date as well. But from what I understand, this is going away and banks brokers will be looking for "liquid" CASH.

 

[Cargren]

QUOTE (Sherilynn @ Apr 12 2010, 07:40 AM) Reasonably accessible money in RRSP`s is also proof of downpayment.

We have used our RRSP mutual funds as proof of downpayment several times and have never cashed in any of them. The bank (or broker) just needs copies of current statements to proove that you have them as a cash equivalent. Then you may pay the downpayment however you wish.

Regards,
Sherilynn

This used to be true, but like Monte said, times are a changin`. Last few times the lenders wanted to see proof, such as statement showing I had cashed RRSP or investment in. So this has become a real problem. This may loosen up again in the future.

However, most lenders will accept funds available in a HELOC as source of down payment.

 

[MikeMcCrae]

Most lenders care very little about debt or how much money you have. Their biggest concern is monthly payments. Lenders treat HELOC money different than other debt because it is not really debt but actually accessing your own funds.

 

[Nir]

QUOTE (Cargren @ Apr 13 2010, 02:18 PM) most lenders will accept funds available in a HELOC as source of down payment.

QUOTE (MikeMcCrae @ Apr 19 2010, 02:20 PM) Lenders treat HELOC money different than other debt because it is not really debt but actually accessing your own funds.

The comments above from Rob and Mike contradict what was previously mentioned by Thomas, Oleg and others that you have to follow the rules and indeed banks want to see the fund in ANOTHER regular account, NOT LOC.

I`m sure others are also curious to know which statement is correct(?)

Thanks & Regards,
Neil

 

[Cargren]

QUOTE (investmart @ Apr 19 2010, 03:08 PM) The comments above from Rob and Mike contradict what was previously mentioned by Thomas, Oleg and others that you have to follow the rules and indeed banks want to see the fund in ANOTHER regular account, NOT LOC.

I`m sure others are also curious to know which statement is correct(?)

Thanks & Regards,
Neil

Please note that a Heloc is a line of credit that is loaned based on equity in a property you own. So the lender views it a little differently than other lines of credit. My last few mortgages have been accepted using my Heloc as source of down payment.

 

[GaryMcGowan]

QUOTE (Sherilynn @ Apr 12 2010, 10:40 AM) Reasonably accessible money in RRSP`s is also proof of downpayment.

We have used our RRSP mutual funds as proof of downpayment several times and have never cashed in any of them. The bank (or broker) just needs copies of current statements to proove that you have them as a cash equivalent. Then you may pay the downpayment however you wish.

Regards,
Sherilynn

The last two mortgages we got which where in the last 2 months stated that if using RRSP funds for down payment it had to be cashed out and de-registered.

The Lenders wanted proof. Going forward depending on the Lender, RRSPs will no longer be used as down payment sources.

 

[RobMacdonald]

QUOTE (investmart @ Apr 19 2010, 03:08 PM) The comments above from Rob and Mike contradict what was previously mentioned by Thomas, Oleg and others that you have to follow the rules and indeed banks want to see the fund in ANOTHER regular account, NOT LOC.

I`m sure others are also curious to know which statement is correct(?)

Thanks & Regards,
Neil

The available credit in a HELOC (secured LOC) can be used for verifying the downpayment on a rental property provided the new monthly payment can be worked out in the TDS.

The banks do care about how much credit you have outstanding, as most lenders have a net worth requirement for each rental property.

 

[MikeMcCrae]

The key to the confusion is in the terminology. LOC=Line of Credit HELOC=Home Equity Line of Credit

An LOC and a HELOC are not exactly the same things. They are operated the same but the difference is a HELOC (although it is a line of credit) is a MORTGAGE. An LOC is a loan.

An LOC is borrowing money that you don`t have, and a HELOC is putting another mortgage on your home to access your existing equity. In the eyes of the bank when proving down payments if you get the money from your LOC you are borrowing it. If you are getting it from your HELOC you are simply accessing your own money. You will still have to debt service the payment on your HELOC on the application but it will be allowed as proof of down payment.

Hopefully this helps.

 

[Nir]

QUOTE (MikeMcCrae @ Apr 28 2010, 05:43 PM)
The key to the confusion is in the terminology. LOC=Line of Credit HELOC=Home Equity Line of Credit



An LOC and a HELOC are not exactly the same things. They are operated the same but the difference is a HELOC (although it is a line of credit) is a MORTGAGE. An LOC is a loan.



An LOC is borrowing money that you don't have, and a HELOC is putting another mortgage on your home to access your existing equity. In the eyes of the bank when proving down payments if you get the money from your LOC you are borrowing it. If you are getting it from your HELOC you are simply accessing your own money. You will still have to debt service the payment on your HELOC on the application but it will be allowed as proof of down payment.



Hopefully this helps.




Thank you Mike for clarifying this!