What am I allowed to use my PSLOC for?

[ls.ca]

Hi all, 

I just wanted to ask a few questions about LOC's & financing that I am yet to see addressed on the new forum.

I see the available funds as having enormous potential if I can use them for various things & I'm curious about what is/isn't allowed.

1. Can I use PSLOC as a down payment + mortgage on a condo?

***Details:

• Might be looking to go to Edmonton, and real estate is so cheap there that it seems goofy to not buy a place & then maintain it after graduating. Especially given that an undergrad degree is the new high school diploma (everyone seems to have one), I just don't see this as becoming an asset where I cannot find consistent tenants in the future, especially if I'm charging competitive rates for students so that they're not going broke just to live close to campus.
• Currently have 0 debt, about 13k savings, +780 credit score.
• Someone had mentioned in a previous thread about how investing using funds from PSLOC isn't okay, so I was curious about whether this sort of purchase is kosher. 
• For those who might refer me to a professional or advisor - I've got an appointment with an advisor coming up. However, I often find I'm too passive when negotiating these sorts of things. Was wondering if anyone on the sub has experience with this? It would help me make a better argument, knowing it's been done before & there's precedent within the industry.

2. Similar to Q#1 -> RBC gives you an "assumed income" while in JD program of 120k. My understanding is that they'll assume I make that much if I come to them for other products. So:

• Can I use the assumed income to leverage a mortgage, or a separate loan for downpayment?
• Can I use this to apply for better credit cards? Currently have 2, would love to consolidate credit into one card at a higher max for the simplicity, but my reported income isn't close to this "120k" assumed that RBC threw out there. 
• Heck, a $120k assumed income would make us a shoe-in for Amex Platinum as well... do other banks do something similar? I haven't found anything on other sites quite like this. 

3. Has anyone gone through a credit lender OTHER than the big 5 banks? I'm thinking National Bank, or a credit union... would just like to know of people's experiences with those if they have any. 

 

Appreciate any insight. I'm early into my research for this, but want to maximize the potential of this sort of loan. It makes sense to utilize this for finishing school in a stronger position financially... I'd much rather have sunk $ into an asset, rather than just throwing it away into renting (i.e. paying for someone else's mortgage). 

[Patient0L]

I love this creativity!

You can use your LOC for whatever you want, but… by what you’ve described above, I don’t think a bank would lend you money for a house…

An easy way to find out is to ask a mortgage broker.

[Renerik]

Sent this to a family member who's an advisor at one of the big banks. They gave me a couple points but it encroaches too much on legal and financial advice. 

- You can't "Use your LOC for whatever you want". Very dangerous advice to give out. If you end up subletting your condo at any point (i.e. if you go to Calgary for a summer job), it could be grounds for the bank to call back the entire PSLOC.
- OP your best bet is waiting for that meeting with your advisor. They're looking out for the bank first, but they're not trying to fleece you.

[TobyFlenderson]

8 hours ago, ls.ca said:

3. Has anyone gone through a credit lender OTHER than the big 5 banks? I'm thinking National Bank, or a credit union... would just like to know of people's experiences with those if they have any. 

I don't know enough about this topic generally to provide any advice beyond "talk to your advisor", which I think should be your primary step forward here because they will tell you what you can and cannot do, but I would encourage you to speak to an advisor that is specifically aware of, and familiar with, PSLOCs. Even at a big bank like Scotia, which anecdotally seems to be the bank for many law student PSLOCs, a typical small town advisor will not give you the same information as a law advisor specifically. They may even tell you that the terms you've seen are wrong (this happened to me when I signed my LOC because I signed it at my local branch but arranged it via email with a Scotia law PSLOC advisor). All this to say, ask an advisor and make sure they're a knowledgeable one. You can find the rep for your particular law school here: https://www.scotiabank.com/content/dam/scotiabank/canada/en/documents/Scotiabank_SPSP_representative_English.pdf

To the quoted part, which is what originally prompted my reply, I'm the only person I know that tried a credit union for their law LOC. My primary financial institution was a CU, so I thought I'd at least ask. Their terms were substantially worse. I think the limit was something like 100K (Scotia is 135, I've heard TD may be even more now), a co-signor was mandatory (never even mentioned by Scotia), the repayment terms were terrible (Scotia gives you a year post-articling of interest only payments, which they'll just take off the LOC if you have credit available, while the CU was principal + interest almost right after grad), and the interest rate itself was uncompetitive (Scotia's prime + 0 vs CU's prime + 1.5).

You could always send off an email or set up a meeting with a CU/small bank to be totally sure, but I suspect you'll find their terms to be very uncompetitive. At the very least, if you feel compelled to inquire at a CU/small bank, compare the offer to Scotiabank before committing.

One final brief point -- Scotia was by far the most competitive PSLOC when I was looking, but I have heard that TD has become more competitive and is more or less on par with Scotia now. A year or two ago, I would have suggested saving yourself the time and just contacting Scotiabank, but TD may be worth investigating as well in case their offerings are better for you.

[CheeseToast]

No bank is going to give you a mortgage on top of a PSLOC while you're still a student lol. 

[Patient0L]

12 hours ago, Renerik said:

- You can't "Use your LOC for whatever you want". Very dangerous advice to give out. If you end up subletting your condo at any point (i.e. if you go to Calgary for a summer job), it could be grounds for the bank to call back the entire PSLOC.
- OP your best bet is waiting for that meeting with your advisor. They're looking out for the bank first, but they're not trying to fleece you.

This wasn’t meant to be taken as literal financial advice… hence the referral to a mortgage broker.

[CleanHands]

30 minutes ago, Patient0L said:

This wasn’t meant to be taken as literal financial advice… hence the referral to a mortgage broker.

You are the most consistent bad and bizarre advice-giver on the forums since @TheCryptozoologist got banned. On multiple occasions you have given advice that has been actively irresponsible, when it isn't merely wrong and/or non-responsive to the questions you are purporting to address.

Funny enough, @TheCryptozoologist also shared your habit of claiming that literally everyone else lacked the reading comprehension or perspective to understand his posts when he got called out.

[Yogurt Baron]

35 minutes ago, CleanHands said:

You are the most consistent bad and bizarre advice-giver on the forums since @TheCryptozoologist got banned. On multiple occasions you have given advice that has been actively irresponsible, when it isn't merely wrong and/or non-responsive to the questions you are purporting to address.

Funny enough, @TheCryptozoologist also shared your habit of claiming that literally everyone else lacked the reading comprehension or perspective to understand his posts when he got called out.

You have a better memory than I do - didn't Crypto also once die on this exact hill, the PSLOC-use question? Or was that someone else?

[Patient0L]

13 minutes ago, CleanHands said:

You are the most consistent bad and bizarre advice-giver on the forums since @TheCryptozoologist got banned. On multiple occasions you have given advice that has been actively irresponsible, when it isn't merely wrong and/or non-responsive to the questions you are purporting to address.

Funny enough, @TheCryptozoologist also shared your habit of claiming that literally everyone else lacked the reading comprehension or perspective to understand his posts when he got called out.

I mean… I literally just said I wasn’t giving advice… Perhaps I was being a bit flippant, but the gist was that if OP goes through with their plan they will find out that they can’t get a mortgage. I’ve had two mortgages. I’m not the only person in this thread who has said this. 

So… how is your tirade against me and what I’ve said on other threads + something about a zoologist responsive to OP’s question?

If you don’t agree with my perspective—which comes from my own experiences, which are different from yours—say you disagree. No need to push it into name calling territory. 
 

 

[BlockedQuebecois]

If you need to follow up your post giving advice in response to a financial question with “This wasn’t meant to be taken as literal financial advice”, you may want to think critically about why you felt the need to post your “not advice” in the first place and reflect upon that before posting in the future. 

[Yogurt Baron]

Just a general comment from an old guy.

One part of maturing and becoming a professional is not feeling you have to throw your opinions in on everything, because you aren't the expert on everything. When you're in the second grade and you read at an eighth-grade level, you can put your hand up for every question, because you're smarter than the other kids your age. But at some point, you grow out of that. As you develop real expertise in stuff, real competence in stuff, you realize that, hey, wait, my opinions about X are actually well-informed and valuable---my opinions about Y are just some layperson popping off. It's not a coincidence that, with zero exceptions, professionals here get that, while students are still learning it - of course students are still learning it, that's what being a student is for.

Circa 2009, when this board's predecessor was home to 500 applicants and maybe one or two 1Ls, I knew more than most of those applicants about access applications - I knew almost nothing, but more than most. So I spouted off a ton, because "almost no information + huge personality" made me a big fish. Here, I spout off less, because I'm no fish at all. There are people here now who actually know things, and I don't want my noise to crowd out their signal. I saw a post the other day from a person with a very specific problem, and nobody was responding to them, and I kind of wanted to do the avuncular "here is how to approach problems" thing, but then I decided, you know what? They're going to a law school that didn't exist the last time I applied. "Not saying anything" is an option. "No advice" is better than "bad advice". If you feel like you have to say something to prove you're the smartest kid in the class, don't.

[Patient0L]

1 hour ago, BlockedQuebecois said:

If you need to follow up your post giving advice in response to a financial question with “This wasn’t meant to be taken as literal financial advice”, you may want to think critically about why you felt the need to post your “not advice” in the first place and reflect upon that before posting in the future. 

Forgive me. I come from a culture in which speech isn’t assumed to be literal unless explicitly stated. Thank you for your guidance. 

[GGrievous]

2 hours ago, Yogurt Baron said:

One part of maturing

Another part is giving up on trolling a law school forum. 

[GreyDude]

On 3/26/2022 at 10:25 AM, CheeseToast said:

No bank is going to give you a mortgage on top of a PSLOC while you're still a student lol. 

Heh... My question may eventually be whether a bank will give me a PSLOC if I currently hold a mortgage.

[TheDevilIKnow]

1 hour ago, GreyDude said:

Heh... My question may eventually be whether a bank will give me a PSLOC if I currently hold a mortgage.

I hold two mortgages, both on properties that are underwater, and still got a PSLOC on the usual terms. I was a little surprised, actually, but they seem to really like throwing money at law students. At the time, my credit was in the 890s, however, so that might have also been a factor. I shudder to look at it now.

[GreyDude]

8 hours ago, TheDevilIKnow said:

I hold two mortgages, both on properties that are underwater, and still got a PSLOC on the usual terms. I was a little surprised, actually, but they seem to really like throwing money at law students. At the time, my credit was in the 890s, however, so that might have also been a factor. I shudder to look at it now.

Heh... your debt-to-credit ratio might have changed with a PSLOC... maybe best not to look. 🙂 

[Tesseract]

On 3/26/2022 at 12:33 AM, Renerik said:

 - You can't "Use your LOC for whatever you want". Very dangerous advice to give out. If you end up subletting your condo at any point (i.e. if you go to Calgary for a summer job), it could be grounds for the bank to call back the entire PSLOC.
 

Why?

As I understand it, the OP is interested in purchasing a property. If the OP uses a portion of the PSLOC to secure a mortgage and then pays said mortgage with the PSLOC, they would not be subletting during the summer months, they would be renting their place out (if they had to summer somewhere else). I come from a financial lending background and this is completely fine, certainly not grounds to call back a PSLOC in my experience. Additionally, say the OP decided to rent a place with the PSLOC and then decided to sublet during the summer, this also does not strike me as grounds for the bank to recall the entire PSLOC primarily because the bank would have no clue that they are subletting to begin with.

To answer your questions OP, I see no issues with the plan in your first question, so long as you make enough income to service your total debt (including what is owing on the PSLOC and what would be owing on the mortgage) when you apply for the mortgage, and you find an institution willing to give you the mortgage (its not impossible). In the second, however, it is highly unlikely that the bank would issue you a mortgage with the same assumed income they use for other products. The reason for this is that the bank has to make sure that you can service your debt. Your debt-service ratio is the percentage of your monthly household income that covers all of your debt payments. Banks like to make sure this stays below 40% in order to ensure that you can afford to pay back the money they lend you. This is also how they calculate what you can afford mortgage wise, your income is just as important as your credit. 

So in closing, if you want to use a portion of your PSLOC as a down payment for a mortgage, I see no issues with this. That said, it is highly unlikely that a bank will issue you a mortgage unless you are currently bringing in a full-time salary (at least $30,000 annually), or you have a co-signor that is. 

[BobButtons]

FYI, most lenders will not allow you to use unsecured credit as a downpayment, unless you have at least 20% from non-borrowed resources on top of it. You are unlikely to find desirable terms from any that will. 

Many brokers will teach you how to "get around" this, but make no mistake: disguising borrowed funds as non-borrowed funds from a lender constitutes mortgage fraud. 

[Tesseract]

You wouldn't be distinguishing them as non-borrowed funds, you would disclose that the money is coming from an unsecured LOC. It's not fraud if you are telling the truth. The bank would then evaluate whether or not they want to accept the risk based on your income, assets, and credit score. 

[BobButtons]

While that is true, no financial institution that I am aware of, having been an mortgage underwriter for a big 5 from 2007-2016 and currently working as a mortgage underwriter for a different bank, will accept unsecured credit as the source of downpayment, except as I indicated (supplementary downpaymemt over and above 20%, or perhaps above 10% for some B lenders). 

Many people get to this point in the conversation with their broker and are then introduced to various "work-arounds", and don't realize that the "work-arounds" are in fact fraud. I felt it appropriate to point that out. 

[Tesseract]

I just spoke to a friend that used a portion of an unsecured LOC as their entire downpayment for their mortgage. They told me that they disclosed the source of the funds (different bank), and the institution that issued them the mortgage accepted the funds. Important to note the mortgage is from a credit union, and they are known to lend money with lower criteria than bigger banks. In the end, it really depends on the financial institution, some will accept it and some will not. 

[BobButtons]

Fair enough, I certainly cannot speak intelligently about the policies of every single credit union. 

[t3ctonics]

FWIW, I occasionally used my PSLOC to pay the mortgage on my condo through law school. There was nothing in the terms of my mortgage or PSLOC (Scotia) that prohibited it. I got the mortgage before I started law school and got a PSLOC, but I specifically remember not being able to use any kind of credit for the down payment. That's been the case for my three subsequent mortgages as well, with two big 5 banks and a credit union. 

I did foreclosures for a few years, and I do recall seeing some where at least part of the down payment was borrowed. Those were mostly investment properties, and all the mortgages were with weird little lenders with high interest rates. Like prime +10%.