Alice wants to buy Dad's duplex for $110,000, and Dad wants to sell for $110,000. Seems like there is no basis for an article, until you fill in the blanks. Alice has worked seemingly forever for a bank. She also has a full time job working at a local grocery store. Her combined income from both jobs is $30,000 per year. She has a leased car ($329 per month), an RRSP loan ($85 per month) and a consolidation loan of $4000 at $250 per month. She wants to use her $30,000 worth of RRSP's for her down payment, and she is a first time buyer. When one applies the system's parameters under qualification standards, even with her $30,000 down, her GDS/TDS ratios are too high at 35.74 and 62% respectively. No lending institution will allow such high numbers. The GDS is the cost of the housing inclusive of principal & interest on a mortgage, property taxes and heating costs, divided into her gross annual income. The TDS is the cumulative addition of all her instalment debt payments, plus the housing costs divided into her gross income. Alice knows this is a good deal because she is buying the unit at $22000 under market value, and there is a tenant that has been in the basement unit for six years paying $525 per month. We just have to make it work!

Under the home buyers plan (using one's RRSPs), there is no rule which says the RRSP money must be used for down payment purposes. As a result, we re-arranged the presentation this way: we used the $30,000 RRSP money to first payoff the leased car ($9000), leaving her with a 1997 small import with no debt against it. We further payoff the consolidation loan ($4000) and the RRSP loan ($6000), leaving $11,000 for the down payment. If we only put down $11,000, then this becomes a high ratio mortgage (beyond 75%) and therefore must be insured through CMHC, or similar insurer. Not only is there a fee to CMHC ($2500) in this case, but her high GDS will cause a rejection by the insurer at 90% financing. We thought of getting Dad to lend her some money, but at $110,000 sale price, she was already getting quite a deal. That was the key to the solution. She was getting an excellent deal!

We elected to keep the first part of the plan (ie. paying off all her debts), but we had to keep the mortgage conventional, that is to a maximum 75% financing. We already knew that Dad was selling her a $132,000 unit for $110,000. How about if Dad sells her the unit for $132,000 on paper (its true value), gives her $22,000 worth of equity (a paper transaction still giving him $110,000 net), she puts down her $11000, leaving a required mortgage of $99,000, which just happens to be 75% of the sale price.  Allowing for 70% of the rental income added to her overall income, her GDS/TDS is now at 34%/34%. Although quite high (usual maximum GDS is 32%), since the lender can approve this loan without going to an insurer (CMHC), we were able to convince an institutional lender to look beyond the numbers to her long time job stability, her lack of alternate debt (which we paid off using part of her RRSPs), a newer car, an excellent credit rating, and 25% worth of equity (being both cash and gift from Dad). The ploy worked and Alice is now the proud owner of her own duplex. Dad got his $110,000.  Everybody wins.  This article may seem a little convoluted, but I assure you everything explained above is legal and conforming.