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When the average Canadian thinks about buying a home, the very first thing that’ll spring to mind will be the amount of money they’ll need for a down payment. Even 5% of the purchase price of a home can add up to a huge amount of money depending on where you’re buying and what the market currently looks like. If you’re concerned about having enough money to finance a large down payment and worried you may not be able to purchase the home of your dreams as a result, you may be surprised to learn that it’s actually possible to buy a house with no down payment at all.
To be clear, purchasing a home with no down payment saved up doesn’t mean that you don’t have to make a down payment at all; it simply means that you’re not using your own hard-earned cash to pay for it. The process entails borrowing your down payment (at least 5% in Canada) which means you’ll be incurring more debt upfront, so be sure your financial portfolio is in strong shape before considering this option.
Low Down Payment Insured Mortgage
Many lenders are now offering insured mortgages for new and resale homes with lower down payment requirements than conventional mortgages. It’s important to note that the carrying costs of low down payment mortgages are higher because they have to include an insurance premium that accounts for potential default of payment. Mortgage default insurance is a one-time premium you’ll either have to pay at closing, or add to the principal amount of your mortgage.
Using RRSP From Home Buyer’s Plan As Down Payment
As part of the federal government’s Home Buyer’s Plan, first-time home buyers are eligible to use up to $35,000 in RRSP savings per person ($70,000 max for couples) toward a down payment on a home. You have access to this option even if you already have the finances set aside to pay for a down payment on your own so don’t rule it out entirely until you investigate whether or not it makes sense to tap into your RRSP savings.
As a bonus, your $35,000 RRSP contribution will wind up counting as a tax deduction for that year so you can turn around and use that tax refund to put money back into your RRSP or pay off other expenses related to buying your home.
Borrowed Down Payment Program
This program is for home buyers who have established an excellent credit history but haven’t managed to save the required down payment just yet or have chosen to use their savings to build assets in different ways. To put it simply, the Borrowed Down Payment Program allows you to borrow both the mortgage money (up to 95% of the home value from a traditional mortgage lender), and the remaining down payment as a personal loan from a different source. When these are combined, you end up with enough money to fund the entire purchase price and in essence, create what’s known as a Zero Down Mortgage. The program has very strict qualifying criteria, so be sure to check that before considering this as an option.
Other Government Programs
Some places in Canada offer special government programs that can help make your home buying process more affordable. Be sure to look into all your options on a federal and provincial level before making any decisions so you know what is available that may be well suited to your personal circumstances or location.
In Saskatchewan, the National Affordable Housing Corporation’s Down Payment Assistance Program could be valuable. This program offers down payment grants of up to 5% of the purchase price of a home. While most grants are repayable over time, some never have to be repaid. The catch is that the grant has to be used toward a home built by one of the program’s building partners. Learn more about this program and see if you may qualify by visiting their website.
In Nova Scotia, the Down Payment Assistance Program (DPAP) assists Nova Scotians with modest incomes who prequalify for an insured mortgage to purchase their first home. Eligible participants can apply to receive an interest-free repayable loan of up to 5% of the purchase price of a home. Learn more about this program and see if you may qualify by visiting their website.
If you live in Manitoba, you may qualify for down payment assistance from Manitoba Housing. The Rural Homeownership Program is available in select Manitoba communities, excluding urban centres where demand for rental housing currently exists. They offer a Vacant Rural Homeownership option that helps qualified applicants purchase vacant homes owned by Manitoba Housing in select rural communities. They also offer a Tenant Rural Homeownership option that helps qualified Manitoba Housing tenants purchase the single-detached home they are currently renting from Manitoba Housing in select communities where there is little or no opportunity to purchase a home. Learn more about this program and see if you may qualify by visiting their website.
In New Brunswick, The Home Ownership Program provides financial assistance to low- and modest-income families to help them buy or build a modest first home. Learn more about this program and see if you may qualify by visiting their website.
Prince Edward Island
The Down Payment Assistance Program (DPAP) is a pilot program to assist qualified residents of Prince Edward Island who have modest incomes in purchasing a first home. Eligible applicants can apply to receive a conditionally interest-free loan of up to 5% of the purchase price of a home, to a maximum loan of $15,000. Learn more about this program and see if you may qualify by visiting their website.
First Time Home Buyer Incentive is intended to help people all across Canada purchase their first home. The program offers 5% or 10% of the home’s purchase price to put toward a down payment. This addition to your down payment lowers your mortgage carrying costs, which makes homeownership more affordable. Applicants pay back the same percentage of the value of their home when they sell it or within a 25-year window. Learn more about this program and see if you may qualify by visiting their website.
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Saving More Money For Down Payment
It’s always an advantage to put down more money for a down payment because it’ll save you a lot of money in interest which can lead to significant savings in the long term. If you have the funds to consider making a larger down payment, be sure to investigate what percentage would be most advantageous to your bottom line. You’d be surprised how much impact a few percentages can have over time. The table below illustrates how much an average homeowner can save in interest costs on a $100,000 home by making down payments of a different value:
Being approved for a no down payment mortgage can definitely be a challenge, but if you’re prepared in advance, it could be a very viable option for you. Be sure to keep an eye on your credit score (aim for 650+), make sure you have the money to pay for closing costs (typically 1 – 2% of your home’s purchase price) and that your employment and income is stable. Whether you’re still learning about a no down payment mortgage or you’re genuinely interested in investigating further, be sure to consult a professional to ensure you make the right choice for your personal financial future. Get in touch with our team to learn more and start the conversation.