If I have 20% down, would banks lend me money for the rest?

Question

Sorry if this appears naive. I live in the UK and we are moving to Canada shortly. I'm asking to make sure my assumption is right as this is pretty fundamental to my plans!

I will not have any credit history in Canada to begin with. I will also not have a job! (I'll be setting up a RE business - cash flow will be my income). If I put 20% down, would banks lend me the rest based on rental potential ALONE or do they need to see some kind of personal income for me?

David Steinbok · Answer

Man, I wish I could take my 500k and buy 10 rental properties, but it doesn't quite work like that. Jacob is right in what he is saying. Sure on paper, it says you can buy a house with 20% down, but you need credit history and a stable income to pay for your mortgage on the house. Then based on your income and debt ratios, the bank decides how much is the maximum mortgage debt you can have. Let's say you make 100k a year at your job, and can qualify for 1mil total in mortgages. Then you can get 4 houses. Great.  The banks also only could rental income as passive income, and only count a % of that. Not sure exactly what it is off the top of my head. Then there are some banks that only allow you to have 5 or six mortgages at a time. Also as others on here can confirm, in southern Ontario you will be hard pressed to find too many houses for 250k. So your 500k will more than likely get you 3 or 4 houses. Dave

Patrick Archer · Answer

Honestly, your best bet is to reach out to a mortgage broker in the province you’ll be coming to and let them know what your plans are.  They’ll have a lot more knowledge about which lenders will loan to someone in your situation.

Julie Toh · Answer

@Jasmine May Welcome to Canada (in advance!).

There is a Newcomer to Canada mortgage - high ratio or conventional program for qualified immigrants who have relocated to and established permanent residency in Canada within the last 3 to 5 years (depending on lender). The conventional mortgage - min. 35% down payment - is a fit for those who cannot provide confirmation of declared income in Canada to meet the standard income confirmation guidelines and have not had sufficient time to build credit history that would allow them to qualify under the bank's traditional mortgage financing programs. Proof of income in Canada not required, instead applicant must provide evidence of the equivalent of 12 months of mortgage principal, interest and tax payments in liquid
savings in Canada (this is in addition to the applicants 35% down payment). The policy for the source of and confirmation of down payment must meet the lender's guideline.

Roger Paczkowski · Answer

How I would do it if I were you (but do seek advice on here and from a RE agent, and a Mortgage broker)

Purchase a flip/rental with 5% down. There will be CMHC fees, but it lets you put 5% down and the fees are baked into the mortgage. This will be your primary residence for 1 night.

Then purchase another with 20% down, this will be your real primary residence where you and your husband/family live.

Whatever $ you have left over goes in the 1st house the flip/rental. What money you have left over, you pretty much have to put down 20% each time. Maybe look at this setup: http://mpgroupcpa.com/post/3-tier-corporate-structure-real-estate-investors/@Jacob Perez was right on what it takes to get a mortgage, income, credit, the house and down payment.

For rental units the banks consider 50% of the rental income as the portion that can count towards your income.

As for credit, a cell phone on a contract and a credit card are great ways to build up credit fast. I've heard putting a $5k in a GIC and then getting a $5k credit card (GIC is security) - this basically gives banks all the reasons to give you a card. The other is income, google TDSR and GDSR. I believe one is 32% and the other is approx 39% and you cant go over these amounts.

If you put down 20% or more you dont need CMHC and can save the fees.

My plan of attack would be to go slow and grow quickly vs starting off with multiple units of the bat. begin with 1, then 2, then 4 etc. Let a bank get to know you through the deals, they will be much more cooperative in helping get to where you want to go. I would also deal with two different banks, in case one thinks its too risky, or is dragging their feet etc. It gives you an alternative to whatever may come.

Theresa Harris · Answer

@Jasmine May  Apologies if I missed it, but I didn't see where you are looking to buy in Canada.  The prices differ a lot depending on the province and city.  Some provinces have extra taxes when buying.

You'll need to talk to a bank when you arrive and find out how much you can borrow.  It is determined by your income.  There are places where you could buy several homes with your $500K using the cash and then once you've established a credit history in Canada, refinance them.

I don't know how mortgages work in the UK, but in Canada you lock in for a long time (amortization period) of up to 25 years and then a shorter term (3-5 years).  Every 3-5 years, depending on what you chose, you renew your mortgage at the current interest rates.

David Nutakor · Answer

@Jasmine May, another option is to get a loan from a private money lender or a hard money lender (you can find them here on BP). Although their interest rates and down payments may be much higher than those of traditional banks, they can work with you without a strong credit history. However, you need to show that you have some experience in real estate investing and the properties you are considering will cashflow.

Jasmine May · Answer

@Patrick Archer

I think I’ll do that.

Ryan Shoemaker · Answer

@Jasmine May

Although a slower process, what about buying the first property all cash, get tenants on leases showing good rentals, and re-finance out for the next one? This by default should give the bank a good reason to lend more money when the first house has no Lien on it.

Interest rates at an all time low and banks are eager to lend. It’s a slower process but this should build you some credit history.

Also, what about partnering with an investor who can do the qualifying for you? I’m always open to a joint venture with the right people. I’m sure others would too.

King Mmuwe · Answer

Hey @Jacob Perez

Say a piece of property is $50 000 meaning R750 000 since I'm in South Africa and one is interested in purchasing...

(1) Which various strategies one can deploy if he/she has NO starting capital $0?

(2) difference strategies they can implement if they have 40% payment down?

Jim Johnson · Answer

In Canada most Banks will require some previous credit history to lend out a mortgage. Having saying that a bank or credit union may still lend you the money.