The Buyer’s Down Payment

Hello, I’m back!

This is the follow-up to my first publication in this magazine. This time, I thought I might offer you judicial precision on the following subject:

The buyer’s down payment

Whether it is to buy a new house, a condominium or even a piece of land, any form of property transaction requires a capital contribution from the buyer. One can pay with cash, obtain financing from the vendor by the creation of a balance of sale guaranteed by the mortgage or, as in most of cases, one can obtain financing with the usual creditors (bank, caisse populaire and/or trust company, etc.)

In a case where the vendor agrees to finance the buyer by a balance of sale in the notary deed, he will insist on, justifiably, obtaining a first ranking mortgage to guarantee the repayment of any outstanding amount owed to him.

When a financial institution agrees to grant a first mortgage, and the vendor in this situation agrees to create a "small balance of sale", he detains a second ranking mortgage. The vendor often imposes the choice of notary in this situation, but this is not an absolute rule.

When it comes to properties situated in the Laurentians, banks and the caisse populaires’ seem to be the most popular choice among borrowers. In some cases, an agreement may already have been reached between the contractor and his own creditor in the eventuality of offering financing to the buyer.

Certain lenders (mostly caisse populaire) will sometimes agree to finance up to 50 % of the price of the land.

When the down payment is less than 25 % of the sale price, the borrower must assume the cost of mortgage insurance (insurance premium + 9 % tax) to be issued by the CHMC or other institution such as GE Capital. In the case of defect on the part of the borrower, the institution can administer a “seizure of payment” to guarantee the repayment of the loan amount to the lender. However, if a buyer makes a down payment of more than 25 %, the loan does not have to be insured as above mentioned.

Whatever the case, the financing of a property during a buy remains an element worthy of careful review prior to the writing of a promise to purchase.

For additional information do not hesitate to communicate with me at (450) 227-7077 or at (514) 745-6673 (NORD) or at (514) 688-3131.

About the Author:
Me Michel Labrèche. This column was prepared by Mtre Michel Labrèche, notary, practising in Saint-Sauveur-des-Monts and Laval for the past twenty years. Me Labrèche is also the president of Domaine le Sanctuaire des Lacs. For more information please see www.monlac.com.