Courage needed

[Annabanana]

Hi there. I'm looking for some advice as a newbie ready to jump into the market. I own my principle residence valued at approx 425000 with 206000 remaining. I'm looking at rental properties in Oshawa bowmanville area. Have been offered two types of mortgages by tow different lenders. 1 as a second home mortgage (I have to sign something saying I won't rent it???) and only 5% down. Or, a mortgage working with 20% down off my loc. I'm assuming that the 5% offer comes with the assumption that my husband and I are arguing a lot... If you know what I mean?
Should I be concerned with the possible problem of lying about this. We have full intention to rent. Any other landlords in the Oshawa area? I hear that available rentals are quite low.

 

[invst4profit]

You should be very concerned about lying to your bank/mortgage company. When you get caught you will suffer the consequences.

Go with the LOC.

 

[bartrading]

Hi,

Yes you should be concerned with the 5% down. That is for a CMHC mortgage and there will be an extra fee which should be disclosed. The fee is not the issue though. If CMHC finds out that you rent it out you will have potentially legal repercussions and most certainly will have great difficulty getting financing in the future.

They have cracked down on this lots since the boom and I highly suggest you don't proceed that way. If you need the extra equity you could look at refinancing your primary residence as you are allowed to go 95% on your primary residence in a refinance and then what you use the funds for is completely up to you. However from a tax perspective this would complicate things slightly (but still manageable) because the interest you would be charged would be blended between your primary residence (non-tax deductible) and the investment property (tax deductible). If you go that route just make sure you talk to your accountant first. If you refinanced to 95% (assuming you can comfortably handle the increased mtg. payment) you could look at possibly having enough to buy two rental properties down the road or have the extra capital to have as an emergency fund, for TFSA, RSP, or RESP... Keeping balance in your overall net worth never hurts either!

Best of luck AnnaBanana!

BAR

 

[bizaro86]

[quote user=bartrading]you need the extra equity you could look at refinancing your primary residence as you are allowed to go 95% on your primary residence in a refinance and then what you use the funds for is completely up to you


I don't believe that's true anymore. The gov't changed the rules, and CMHC will now only go 85% on a personal residence refinance.



Source: http://www.cmhc-schl.gc.ca/en/hoficlincl/moloin/hopr/hopr_001.cfm



Regards,



Michael

 

[Thomas Beyer]

[quote user=Annabanana] I hear that available rentals are quite low.
Do some more in-depth research into the area first: what kind of rents are doable with what kind of home. You MUST KNOW .. not just "hear".



In parallel I would get approved for a LOC on the 1st house up to 80% of value, so about 340K-206K = 130K available in cash to draw.



Assuming you want to buy a house worth around 300K, put 20% of it, i.e. 60K, into the savings account and show it as cash, as a new mortgage application for the 2nd home will need 3 months evidence of cash. You can get at most 80% LTV for a rental property.



Ensure that the debt load is manageable, assuming a 5% interest rate with 25 year amortization, your other employment income and realistic rent with 1 month vacant per year on average.



btw: Perhaps buy a house with an in-law suite so that the arguing spouse (you ?) can go there once in a while .. or, as you will discover, rent it for $10,000 a year to realize how expensive the arguing actually is !

 

[Annabanana]

Thank you do much for the prompt responses from everyone. I already have a preapproved loc for 70,000. I do have money in TfSA's as well. Im a little confused. Is refinancing my home a better option than loc? Btw, we are not arguing, I was told that was a way we could be approved for the 5% down. We want to start with a small home probably duplex to start. We are looking at the 170,000 range. My husband is a muliticketed tradesmen. We are aiming to find a small home with a few repairs, no mold or major issues, just basic cosmetics. I will find out the current rental availability - for sure, good tip.

 

[Annabanana]

Also, I have no intention with going ahead with the 5% at all now. Thank you!

 

[Sherilynn]

[quote user=Annabanana]Also, I have no intention with going ahead with the 5% at all now. Thank you!




Good decision. If it was me, I would always regret the lie, regardless of whether I got caught.



What is success without integrity?



By operating our businesses and lives with integrity, we can make mistakes (even really big ones) and never regret the decision because we did the best we could with the knowledge we had.

 

[stevegwhite]

Good call. Lying may also set you up for trouble down the road if you begin picking up other properties as investments. It's always best to be straight from the beginning.



I'm located in Ajax if you're looking for some help or advice on our market.

 

[Thomas Beyer]

[quote user=Annabanana] Is refinancing my home a better option than loc?
A LOC is more flexible, and you pay interest only on money you need, when you need it. However, it is slightly more expensive. Most LOCs are prime + 1% (although I have one at prime right now at ATB, and Royal Bank offers at prime plus 0.5% right now), whereas a 5 year mortgage is available around prime or 3% right now.



On a LOC you pay interest only, whereas a mortgage has an amortization, thus you must pay more than just interest per month, whether you like it or not.



Therefore, any prudent real estate investor should have the maximum LOC approved, but not necessarily used.



Get a LOC when you do not need it, as banks take a lot of time these days with appraisals and legal and all .. and once you need it they may not give it to you.



5% down is only available on a second home used personally, not as a rental property. The person who told you to lie should be replaced with a more honest person ASAP.

 

[stevegwhite]

If you do go with a LOC, be sure that any money you want to use for personal use is separated.

For example, you get $70,000 but don't plan to buy for a few months. Since you have cash available you decide to redo your kitchen countertop with some of the LOC. Be sure you have your bank segregate a chunk of cash for personal use because if you mix investment borrowing with personal borrowing in the same loan account you'll loose the ability to deduct the loan interest on your taxes.

If you have $15,000 for your own use and $55,000 for an investment property, then you have a clean separation and can deduct the interest payments on whatever you borrow from the investment account.

 

[Annabanana]

What do you do Steve?

 

[stevegwhite]

My 9-5 is in the news industry as a photo editor, but as an investor I have a seasonal rental property on the Cabot Trail and two student rentals.



I'm not a realtor or broker, I just an investor in the area. If you have specific any questions - steve.white (at) me.com. I'm happy to help. Questions are great, I pester my broker and agent constantly with questions.