I am often asked about 100% financing. I even have lending institutions and insurers asking about 100% financing. The following is an introduction to various methods of buying with little or no "evident" down payment. These examples are provided for information only, and I am in no way promoting 100% financing.

The minimum required down payment in the Canadian mortgage system is 5% of the purchase price, plus you must demonstrate that you have access to another 1.5% of the purchase price for closing costs. The simplest way of getting the down payment without regard to endless questions is to save the cash in a bank account and be able to produce the last three monthly statements. If you have the cash, you probably won’t need to read the rest of this article.

The next easiest method of showing the cash is to produce a gift letter from an immediate family member (mother, father, sister, brother, grandparent, etc.). The letter must specify that the amount of money being transferred from gift giver to recipient does not have to be repaid in any way, and that it is an outright gift. Along with the letter, a copy of the gift cheque is also mandatory.

The system says you can’t borrow your down payment. The actual rule is that you cannot borrow unsecured money for your down payment. You are allowed to borrow against an equivalent asset, such as mutual funds, GIC’s, term deposits, bonuses, etc. Once you have borrowed the money for the down payment, you must declare it to the mortgage lender, who will ask you to produce the paperwork showing the loan as being fully secured. You are also going to declare the debt along with its payment, for debt service criteria.

You can also borrow your down payment through your RRSP, as long as you are a first time buyer. The definition of a first time buyer according to CMHC and Revenue Canada guidelines is a person who has been a renter for the last five years. You may borrow up to $20,000 per qualified person to a maximum of $40,000 for a couple. Once you have borrowed this money, repayment of the RRSP (interest free) is calculated as 1/15th of the whole per year, over the next 15 years. The payment will be taken into consideration when calculating your debt service ratios.

The scheme that allows you to borrow to top up your RRSP with a loan, keeping the loan for 91 days, repaying the loan and claiming a monster RRSP contribution that year will generate a rather large income tax refund cheque. You may use this refund only if you have an equivalent asset. I would suggest that once you have your refund, deposit the money in the bank and wait for four months. In four months time, you can produce evidence that the money has been in your bank account for at least three months. If you produce a three month statement to your mortgage lender which shows the large deposit, questions will be asked. If the answer to the deposit is a result of a large income tax refund, someone will be looking for an equivalent asset. By the same token, if one were to borrow on credit cards or against a "line of credit", and invest the cash in a term deposit, or GIC, and then cash in the investment for deposit to your chequing account or savings account, wait the four months, and produce three months’ bank statements, the system will allow the proof as provided. Don’t forget to declare the debt. If your loan officer asks the purpose of the line of credit debt, you can honestly tell him/her it was for investment purposes.