Creative financing works well when the market is stagnant.  This hot market may not be conducive to Vendor participation or Vendor-Take-Back financing.  Let's discuss some of the options from the perspective of both the purchaser, as well as the Vendor.  First and foremost, the purchaser......When you can now buy a $250,000 home with 5% down (in the greater Ottawa area), high ratio mortgage insurance (also called default insurance) will cost 3.75% of the mortgage amount.  That insurance premium can be added to the mortgage but the amount itself ($8900) is scary.  How can one avoid having to pay this mortgage insurance?  Get the Vendor of the property to lend you (by way of a second mortgage) 20% of the purchase price ($50,000) at the same rate as the first mortgage.  This 20%, coupled with your down payment of 5% ($12500), adds up to 25% of the purchase price.  The remainder is what you require from your first mortgagee, $187,500.  We all know that 75% financing avoids the need for a high ratio insurance company, therefore you no longer have to pay the premium of over $8900.  As long as the vendor is willing to take back the second mortgage at the first mortgage rate (7.15%), you will have saved the premium and the interest on that premium, some $14240. As long as you have some real money going into the venture (your 5% down payment), and as long as the Vendor can afford the investment, more and more sellers will go along with your offer to purchase their property.  When I speak of the Vendor being able to afford the venture, he/she cannot offer you 20% financing unless he/she has 20% equity in the property.  In other words, suppose I am selling my house for $250,000 but I still owe to my mortgage company $210,000, I cannot afford to lend you, the purchaser,   $50,000 because I only have $40,000 equity (purchase price less outstanding mortgage).

Vendor participation means the Vendor of the property will pay for certain things in order to make sure the property sells.  I have seen offers where the Vendor has agreed to provide a new survey, pay for appraisal fees or CMHC application fees, legal fees and land transfer tax.  Why would a Vendor agree to pay for all these things?  If the homeowner only has enough money for the down payment, but no reserves for closing costs, the Vendor may elect to cover these costs, rather than lower the price of the house.    To the Vendor, he/she receives the same net amount, but to the home buyer, it is far cheaper to negotiate with the Vendor to keep the price high and pay for closing costs, than to negotiate a lower price on the home, and have to borrow money to pay for all the closing costs.  If the home owner were to borrow the closing costs (allowable under CMHC guidelines), it would mean a higher rate of interest on a personal loan, and he/she would now have two separate payments, one for the house, and one for the closing costs. 

From the Vendor's perspective, taking back a second mortgage is only advisable if there is real money going into the venture, and only if you must, to accelerate the sale of your house.  Too many things could go wrong loaning the purchaser money.  It seems most Vendors won't have much need to accelerate their present home sale, seeing that there is very little inventory for used houses, and all kinds of demand.  If you feel the need to discuss ideas relating to strategies for buying or selling, call me.