While the Albertan economy is leveling out, Albertans still need places to live. High rent and higher living expenses can make it incredibly difficult to save up for a down payment on a house. Here at Source Mortgage, we want you to know that there is an alternative to the standard down payment of 5% or more: Flex Down Payments.
What Is a Flex Down Payment?
This mortgage product allows buyers to borrow money for their down payment from a third party. This could come in several different forms, such as a line of credit or equity on an existing home.
What Are the Requirements?
Because Flex Down Payments are a riskier product from a lending point of view, it is imperative to have excellent credit and little to no debt. Lenders require assurance that the buyer won’t default before they have paid their loan in its entirety. The ideal candidate would be someone who:
- Has established credit.
- Has a consistent income.
- Has at least two credit accounts. IE: credit card, line of credit, car lease, etc.
- Is looking for a home that is comfortably within their price range.
What Factors Should Be Taken into Consideration?
If the above applies to you and you are seriously considering a Flex Down Payment for your new home, here are two key factors that will need to be reviewed in the context of your situation:
- Mortgage insurance will increase: As we have mentioned above, Flex Down Payments are considered riskier than traditional down payments. Because of this, mortgage insurance premiums will be higher than normal. While the premiums would only be a fraction of a percent higher, this will contribute to a buyer’s debt-to-income ratio.
- Lenders will know where your money is coming from: In a perfect world, lenders wouldn’t care where the money for a down payment came from as long as you are able to provide it. But the reality is that this extra outstanding debt will be factored into a lender’s estimation of the potential buyer’s monthly obligations.
Flex Down Payments do have specific requirements, but for many people that do qualify, this is a great way to buy their home sooner without needing to wait to save up for a down payment. If this sounds like something that could aid in your home buying journey, give us a call today. We can help you decide whether or not this mortgage product is right for you, and potentially get you in your new home sooner than you think!