When purchasing a home in Canada with <20% down & <$1,000,000.00 the mortgage insurers require a minimum down payment requirement. This requirement is:

5% on the purchase of $0.00 – $500,000.00

10% of the amount between >$500,000.00 and <$999,999.99

The insurer also requires a closing cost confirmation verification of 1.5% of the purchase price. Verifying down payment becomes the minimum mandate + 1.5%.

Clients who cannot verify the closing costs up front have a Cash Back mortgage option through our lending partners MCAP & RMG. These lenders will provide between 1-3% in cash back up front by way of a direct deposit on closing date. The interest rate for the client is increased to make up for the cash back percentage, however; the cash back can be used to verify the 1.5% closing costs & pay off any other liabilities. It cannot be used for the down payment verification.

Live deal example:

Clients purchasing their first home with a basement suite. In order to qualify, the clients needed to pay off a $10,000.00 balance on their line of credit.

Purchase Price: $740,000.00

Down payment minimum: $25,000.00 + $24,000.00 = $49,000.00

Closing costs verification: 1.5% x $740,000.00 = $11,100.00

Total funds needed for verification to the lender: $60,100.00

Total debt payouts needed: $10,000.00

Total funds needed for the lender: $70,100.00

The client has a total of $54,000.00 in his bank account. Sending the deal to a traditional lender would not have qualified, as the client did not have enough money to verify the down payment + closing costs + debt payouts.

RMG was able to approve the file using a 3% cash back approval:

Down payment verification of $49,000 came from the client’s bank statements

Closing costs of 1.5% came from 50% of the cash back.

Debt payout of $10,000.00 came from the other 50% of the cash back.

The client was approved with requiring $50,000.00 upfront, versus the $70,100.00