What happens to the deposit....

[homesweethome]

Hi there everyone! We are currently looking at the Fairwinds community and I had a question about the $25,000 deposit required upfront. What happens to this deposit upon closing? If we choose to use the Home Buyers Plan for our downpayment and the mortgage is funded - is this $25,000 returned to us in cash? The reason I ask is that we may be borrowing (interest free thank god!) the deposit amount and would like to pay it back in full upon closing.

Thanks in advance for any input.

[north59]

The deposit money is applied against the full value of the mortgage.

If your house is going to be $350, you put down $25, you only need to mortgage $325.

If you are going to borrow the $25K with the other $325 then I guess you need to get your mortgage prior to your down payment.

[GreyingJay]

The $25,000 is simply treated as going toward your down payment. It cannot get refunded. However, when you withdraw up to $20,000 from your RRSP under the Home Buyers' Plan, you can put that toward whatever you need to, so you can use that money to pay back the deposit amount (you'll have to save the other $5,000 yourself, of course).

So:

You borrow $25,000 from somewhere and write a cheque to Mattamy.
Your remaining mortgage amount is (house cost - $25,000).
You withdraw $20,000 from your RRSP's under the Home Buyer's Plan.
You give that $20,000 to whoever you borrowed the money from.

[pfdude]

Depending on the lender, you may be able to incorporate that 25k into your mortgage and get it back in cash at closing.

One other note, that 25k deposit won't go towards any down payment on your mortgage.

[GreyingJay]

Originally Posted by pfdude

One other note, that 25k deposit won't go towards any down payment on your mortgage.

Eh? Sure it does.

My house cost $215K. I paid $15,000 to Mattamy as a deposit (townhomes were only $15K, not $25K.)

My mortgage terms required a 25% down payment, or $53,750 (25% of $215,000).

I gave my lawyer a cheque for $38,750 (plus miscellaneous costs including lawyer fees, so closer to $40K) on closing. My 25% down payment was considered complete ($38,750 + $15,000 = $53,750).

[BiggieG]

Of course it counts as a downpayment!

[homesweethome]

Thanks very much for the feedback. GreyingJay - just to clarify on the HBP - I can withdraw the funds and use them however I like? They do not have to go to the downpayment? So I would be able to withdraw the funds and repay the $25,000 loan without penalty?

[pfdude]

Originally Posted by BiggieG

Of course it counts as a downpayment!

Sorry if I'm giving false information. I'm going on what a Mortgage Specialist at RBC told me.. I never knew that I had to check up on the facts from a well known bank

[GregS]

Note: If you borrow money (not from the HBP) to use as your deposit, this will count towards your debt ratio and may affect the amount of mortgage you can get.

Make sure you go over all your financial details before borrowing money with a mortgage pending.

[GreyingJay]

Originally Posted by homesweethome

Thanks very much for the feedback. GreyingJay - just to clarify on the HBP - I can withdraw the funds and use them however I like? They do not have to go to the downpayment? So I would be able to withdraw the funds and repay the $25,000 loan without penalty?

Correct, they just write you a cheque or transfer the funds to your bank account. They don't follow up on how it was used (at least not for me, yet) -- you could spend it all on hamburgers if you really wanted to, but that wouldn't be very financially sound