If you’re in the market to buy a home, you know the process isn’t always easy. In recent years, mortgage insurance and qualification changes – implemented by the federal government – have made it increasingly difficult to buy a home for many Canadians, particularly first-time buyers. But, in the face of challenge and change, there are some non-traditional options to help you obtain the mortgage financing you require.
One such option is a vendor take-back mortgage (VTB), whereby the seller extends a loan directly to the buyer. Also known as a seller take-back mortgage, a VTB provides buyers with funds they may not otherwise have access to in order to purchase the home, and allows sellers to secure the sale of their home by lending the money needed to buy it.
The size of the loan varies based on specific needs, and it’s possible to end up with a larger amount than a bank is willing to provide. The interest rate is established by the seller, and could be higher than a traditional loan in order to offset any inherent risks, yet likely lower than if the money was obtained through other means.
Alternative financing option
Qualifying for a VTB mortgage is generally easier than through traditional funding, less cumbersome in terms of paperwork, fees and time, and typically allows for greater negotiating flexibility.
While VTB mortgages aren’t commonly recognized in residential real estate, they are – in light of recent market changes – becoming increasingly more prevalent as a viable option to overcome the financial burdens buyers face. If you’ve already been to a traditional lender, you know about stress test requirements, which may negatively impact your ability to obtain financing. Perhaps you’re having difficulty coming up with the down payment, or you have bruised credit or limited credit history and you’ve been turned away? A VTB mortgage provides you with an alternative financing option to make purchasing your home a reality.
A VTB mortgage may also be appealing if you’re looking to buy a home that requires substantial renovations as not all lenders are comfortable financing this type of property or, if they are, they’ll charge a higher than normal interest rate. The loan you obtain from the seller can also be used to supplement any approved financing you were able to secure through traditional methods. This means you may be able to offer a higher price to secure the home of your dreams or increase your down payment and avoid the cost of mortgage loan insurance – a requirement for those putting less than 20% down.
A VTB mortgage can be beneficial to both buyer and seller. Generally, you’ll find that it’s a win-win situation. As with any complex financial decision, however, it’s always best to consult with your mortgage agent for guidance and advice.
Have questions about whether a VTB mortgage makes sense for you? Answers are just a call or email away!