So I have used up all my own money on a few rental properties, so I hit the streets looking for investors that were willing to invest with myself and my partners to purchase another rental property. So it happend pretty quick and we found someone that invested 50,000.00 with us. We found the property and had 20% DP ready, So I went to my broker explaining this is the first time I've ever used borrowed money and he tells me the $50,000.00 that I have is no good because it is "gifted" and therfore is illegal to be used as a downpayment. So I'm left scratching my head, well then what was all this talk about using Private Money to build your portfolio. I know that it can be done, however can someone with experience explain to me what I'm doing wrong, does the lender(s) name need to be on title or a charge on the property, what are the steps so that lending institutions don't make a stink about getting the mortgage approved
Question about Down Payment money recieved from Investor
- Thread starter zorant
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[quote user=zorant]what are the steps so that lending institutions don't make a stink about getting the mortgage approved
Tell them the facts and possibly have you and the investor on title and on the mortgage. That usually does not create a problem (unless investor has bad credit or poor income). This may reduce investors' willingness to invest, though .. so be aware of this add'l paperwork for investor !!
Or, open a corporation, with 50K in it and have the corporation on title, and likely you (and/or investor) as mortgage guarantor !
Also, use a mortgage broker familiar with investors. Not all banks like investors .. and many mortgage brokers are unfamiliar in that territory ! You need a mortgage broker that knows what works for investment real estate !!
Tell them the facts and possibly have you and the investor on title and on the mortgage. That usually does not create a problem (unless investor has bad credit or poor income). This may reduce investors' willingness to invest, though .. so be aware of this add'l paperwork for investor !!
Or, open a corporation, with 50K in it and have the corporation on title, and likely you (and/or investor) as mortgage guarantor !
Also, use a mortgage broker familiar with investors. Not all banks like investors .. and many mortgage brokers are unfamiliar in that territory ! You need a mortgage broker that knows what works for investment real estate !!
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Good information.
However, a gift that is "non-arm's length" is not allowed. For instance, if the money was gifted from a family member it would be OK...from an investor that you are not related to, it is likely that a gift would NOT be accepted.
Ask your investor if they would be willing to obtain the mortgage? After all, they are interested in investing...leveraging the property is in their best interest and likely is the ONLY way the property will be purchased. You would then register your JV Agreement on title as your security.
If they are unable or unwilling to get the mortgage solely, you may offer to become a co-applicant.
Another option is to try to avoid obtaining a mortgage conventionally. There are many ways to obtain "seller financing". I have used these methods personally and prefer them.
Good luck!!
Lucas Fausak
Associate, Remax Excellence Edmonton
780.965.7029
However, a gift that is "non-arm's length" is not allowed. For instance, if the money was gifted from a family member it would be OK...from an investor that you are not related to, it is likely that a gift would NOT be accepted.
Ask your investor if they would be willing to obtain the mortgage? After all, they are interested in investing...leveraging the property is in their best interest and likely is the ONLY way the property will be purchased. You would then register your JV Agreement on title as your security.
If they are unable or unwilling to get the mortgage solely, you may offer to become a co-applicant.
Another option is to try to avoid obtaining a mortgage conventionally. There are many ways to obtain "seller financing". I have used these methods personally and prefer them.
Good luck!!
Lucas Fausak
Associate, Remax Excellence Edmonton
780.965.7029
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- Oct 16, 2007
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- 758
The banks generally do not allow 'gifts' to purchase rental properties. There is one lender that will, but it has to be from a direct relative.
I would be a little concerned if your broker used the words 'illegal'. It's not illegal, it just has to be structured properly. If the downpayment is coming from your JV partner, there are several ways you can structure this.
1. Your JV needs to be included in the mortgage application or be willing to qualify for the mortgage on their own
2. In some cases, they are not willing or unable to qualify, therefore the funds have to be into your hands in order to verify the downpayment. You would need to be in possession of the funds for 90 days.
3. And this is my recommended way.... if you have access to a Home Equity Line of Credit, or can set up a new one, then you use the available credit as verification of the downpayment. The lender does not ask to see the transaction at the lawyer's office, so your JV can provide the funds to the lawyer direclty.
If you can create the available credit on a HELOC, you can do this over and over and over again.
I would be a little concerned if your broker used the words 'illegal'. It's not illegal, it just has to be structured properly. If the downpayment is coming from your JV partner, there are several ways you can structure this.
1. Your JV needs to be included in the mortgage application or be willing to qualify for the mortgage on their own
2. In some cases, they are not willing or unable to qualify, therefore the funds have to be into your hands in order to verify the downpayment. You would need to be in possession of the funds for 90 days.
3. And this is my recommended way.... if you have access to a Home Equity Line of Credit, or can set up a new one, then you use the available credit as verification of the downpayment. The lender does not ask to see the transaction at the lawyer's office, so your JV can provide the funds to the lawyer direclty.
If you can create the available credit on a HELOC, you can do this over and over and over again.
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Hi Rob or other mortgage brokers
In your post above is 3) legal?
This does not seem right to my (non mortgage broker expert) eyes
Thanks
In your post above is 3) legal?
This does not seem right to my (non mortgage broker expert) eyes
Thanks
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Hi Adam,
Maybe if you look at it a different way, it may seem right. It's not illegal, that's for sure.
Assume you went out and bought a rental property and used $50K from your HELOC as the downpayment. After you own the property for a month, you have an interested JV partner in the property. He gives you $50K for a 50/50 split in the property. You then pay down your HELOC by 50K. You would be in the position to buy again with the available credit.
The banks aren't absolutely concerned about where the money comes from, but the fact that you have the means. If you have $200K sitting in a savings account, you could use that to verify the downpayment. The bank doesn't ask to see the money leave that account and go to the lawyer. I guess this is similar to using a HELOC in the original example.
Does that seem reasonable?
Maybe if you look at it a different way, it may seem right. It's not illegal, that's for sure.
Assume you went out and bought a rental property and used $50K from your HELOC as the downpayment. After you own the property for a month, you have an interested JV partner in the property. He gives you $50K for a 50/50 split in the property. You then pay down your HELOC by 50K. You would be in the position to buy again with the available credit.
The banks aren't absolutely concerned about where the money comes from, but the fact that you have the means. If you have $200K sitting in a savings account, you could use that to verify the downpayment. The bank doesn't ask to see the money leave that account and go to the lawyer. I guess this is similar to using a HELOC in the original example.
Does that seem reasonable?
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Hi Rob
Yes that seems reasonable - assuming bank is not asking for assurance you are using those funds for DP but as proof that any funds are available if needed - is that the case? What does lending contract actually read as?
[quote user=RobMacdonald]Hi Adam,
Maybe if you look at it a different way, it may seem right. It's not illegal, that's for sure.
Assume you went out and bought a rental property and used $50K from your HELOC as the downpayment. After you own the property for a month, you have an interested JV partner in the property. He gives you $50K for a 50/50 split in the property. You then pay down your HELOC by 50K. You would be in the position to buy again with the available credit.
The banks aren't absolutely concerned about where the money comes from, but the fact that you have the means. If you have $200K sitting in a savings account, you could use that to verify the downpayment. The bank doesn't ask to see the money leave that account and go to the lawyer. I guess this is similar to using a HELOC in the original example.
Does that seem reasonable?
Yes that seems reasonable - assuming bank is not asking for assurance you are using those funds for DP but as proof that any funds are available if needed - is that the case? What does lending contract actually read as?
[quote user=RobMacdonald]Hi Adam,
Maybe if you look at it a different way, it may seem right. It's not illegal, that's for sure.
Assume you went out and bought a rental property and used $50K from your HELOC as the downpayment. After you own the property for a month, you have an interested JV partner in the property. He gives you $50K for a 50/50 split in the property. You then pay down your HELOC by 50K. You would be in the position to buy again with the available credit.
The banks aren't absolutely concerned about where the money comes from, but the fact that you have the means. If you have $200K sitting in a savings account, you could use that to verify the downpayment. The bank doesn't ask to see the money leave that account and go to the lawyer. I guess this is similar to using a HELOC in the original example.
Does that seem reasonable?
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[quote user=housingrental]Hi Rob
Yes that seems reasonable - assuming bank is not asking for assurance you are using those funds for DP but as proof that any funds are available if needed - is that the case? What does lending contract actually read as?
Every contract is going to be different, and every lender writes their condition a little different depending on what is stated by the mortgage broker for down payment. The only thing in the mortgage approval in most cases is a statement that 'Secondary Financing is not permitted'.
If I state on the application that the down payment is coming for a HELOC, then the condition will be something like: "Please provide recent statement for RBC Heloc showing credit limit, available funds and minimum monthly payment:"
For cash deposits, the lender asks to see 90 day history of bank account. Some lenders has a one liner, that asks for 90 day history, others write a paragraph to cover their bases.
Yes that seems reasonable - assuming bank is not asking for assurance you are using those funds for DP but as proof that any funds are available if needed - is that the case? What does lending contract actually read as?
Every contract is going to be different, and every lender writes their condition a little different depending on what is stated by the mortgage broker for down payment. The only thing in the mortgage approval in most cases is a statement that 'Secondary Financing is not permitted'.
If I state on the application that the down payment is coming for a HELOC, then the condition will be something like: "Please provide recent statement for RBC Heloc showing credit limit, available funds and minimum monthly payment:"
For cash deposits, the lender asks to see 90 day history of bank account. Some lenders has a one liner, that asks for 90 day history, others write a paragraph to cover their bases.
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I totally agree with Lucas Fausak, and that's a cool idea to go for. You should go for it.
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[quote user=RobMacdonald]
3. And this is my recommended way.... if you have access to a Home Equity Line of Credit, or can set up a new one, then you use the available credit as verification of the downpayment. The lender does not ask to see the transaction at the lawyer's office, so your JV can provide the funds to the lawyer direclty.
If you can create the available credit on a HELOC, you can do this over and over and over again.
We used this method or similar on many occasions with different lenders. It works great!
3. And this is my recommended way.... if you have access to a Home Equity Line of Credit, or can set up a new one, then you use the available credit as verification of the downpayment. The lender does not ask to see the transaction at the lawyer's office, so your JV can provide the funds to the lawyer direclty.
If you can create the available credit on a HELOC, you can do this over and over and over again.
We used this method or similar on many occasions with different lenders. It works great!