The Buyer’s Down Payment

Whether purchasing a new or used home, a condominium or a piece of land, any form of property transaction requires normally a capital contribution from the buyer.  In most of cases, one can obtain financing with the usual creditors (bank, Caisse Populaire and/or Trust Company, etc…).

In case where the vendor agrees to finance the buyer with a balance of sale created in the notary deed, he will insist on, justifiably, obtaining a first ranking mortgage to guarantee the repayment of any outstanding amount owed to him.

When a financial institution agrees to grant a first mortgage, and the vendor also agrees to create a “small balance of sale”, he often detains a second ranking mortgage taking rank after the first.  The vendor often imposes the choice of notary in this situation to protect his rights, but this is not an absolute rule.

Certain lenders (mostly Caisse Populaire) will sometimes agree to finance up to 50% of the price of the land without a house.

When the down payment is less than 20% of the sale price, the borrower must assume the cost of mortgage insurance (premium + tax) to be issued by the CMHC or other institution such as GE Capital, Grenworth.  However, if a buyer makes a down payment of more than 20%, the loan does not have to be insured as above mentioned, the risk being lower.

Whatever the case, the financing of a property remains an element worthy of careful review prior to the signing of a promise to purchase, and shopping around can add up to great saving, since the banking market is fierce.

For more information, don’t hesitate to contact me at  450-227-7077 cell.514-688-3131 or by email at info@lecourtierdunord.com

Michel Labrèche Notaire

About the Author:  Me Michel Labrèche. This column was prepared by Mtre Michel Labrèche, notary, practising in Saint-Sauveur-des-Monts and Laval since 1983. Me Labrèche is also the president of Domaine le Sanctuaire des Lacs. For more information please see www.monlac.com.