In Canada, you can get a no down payment mortgage. This is a great option for people who don’t have the money to make a large down payment on a home. It’s also a good way to buy a home if you’re not sure how long you’ll stay in the area.
There are some restrictions on who can get a no down payment mortgage, but it’s worth checking into if you’re interested in buying a house.
How Much Down Payment for a House
Of all the challenges that first-time homebuyers face over the years that I’ve seen, it is the down payment that is the most common thing that first-time homebuyers found challenging here in Canada.
The minimum down payment for purchasing a home for you to live in is 5%. Being able to come up with your down payment funds is not something that comes easily to absolutely everyone. You must put a plan in place to be able to put funds away to be able to save up for your down payment.
This is especially difficult for those living out independently, not living with mom and dad and paying rent and utilities.
Mortgage Down Payment Canada
First, let’s go over some of the rules and guidelines around the down payment. The Canadian federal government has put some rules in place regarding mortgages.
To track where down payment funds come from. Again, this is to prevent money laundering. Now money laundering is when you use the proceeds of the sale of illegal criminal activities for the purchase of a house, so when it comes to putting down payment down for the purchase of a home, it’s not just how much you have but where those funds come from.
Mortgage Down Payment Source
Down payment funds typically come from savings or investments, so you’ll have to show your previous three months of bank statements or investment statements showing that you’ve had these funds for at least three to four months any deposits to your accounts over that time that is not clearly payroll does have to be explained and tracked you may need to provide follow-up documentation to clarify where those extra fund deposits came from.
Down payment Gift Rules Canada
If you’re receiving money from a family member as a portion or all of your down payment that is indeed allowable. Still, it must be from an immediate relative, so mother, father, sister, brother or a grandparent.
Extended family and friends or even your employer is certainly not allowed. It must be an immediate relative. These funds need to be considered as a gift with no repayment required, so both parties, the person that’s giving the gift as well as the person that’s receiving it, will need to sign what’s called a gift letter to verify that that’s being given as a gift and that there’s no repayment.
Zero Down Payment Mortgage Canada
So what happens if you don’t have your five percent down payment from these sources that I’ve mentioned you don’t have enough savings you don’t have any investments and you are still looking to purchase a home. Well there are some options out there you may have heard the term zero down mortgage. Up until a few years ago zero down payment mortgage was a thing that was a widely used mortgage product I did plenty of them but those mortgage products are no longer available. A hundred percent financing or zero down mortgages really aren’t.
Down Payment Loan Canada
If you don’t have access to that traditional down payment funds and savings or investments or you don’t have a family member that can gift you some funds; there are still options available the Flex down or borrow down payment programs still act like the zero down programs, but they aren’t called that under the Flex down or borrow down payment programs you’re allowed to borrow the down payment funds from a line of credit or from a loan Flex owned and borrow down payment is basically the same term for the same product for this article I’ll use Flex down because that’s kind of the term that the industry uses well this Flex down program certainly sounds too good to be true and if that’s what you think, well you’re right there are some pretty strict criteria to be able to be approved for a flex down mortgage so let’s go over some of those.
Flex Down Mortgage Rules
There are some rules for flex down mortgage:
Credit Score
The main criteria for being approved for a Flex down mortgage are that you must have an excellent credit history. Your minimum credit score should be 650. Your credit must be seasoned and impeccable you’re going to have to have at least a loan a couple of credit cards and that sort of thing in your name for at least three to five years, if you’ve missed any payments on any credit items over, say 12 or 24 months that could take you out of the running to get a flex down mortgage.
Current Job
You must demonstrate that you can afford the monthly payments, and you must be able to prove that you’ve been employed at your current job for at least three years or more.
If you are permanent and full-time at your job whether you’re salaried or paid hourly and you’ve been with the same employer for at least three to five years that is pretty much the ideal client for a flex down program they’re looking for a good solid stable income that isn’t gonna cause any troubles down the road even
Property Value
Another important factor is the value of the property you are buying. If the property is below $500,000, the down payment is 5%. But, if the home value is above $500,000 till $1 million then the down payment is 10%. You have to check with your mortgage lender up to what percentage will they cover.
Capability to Pay-back
These lenders are going to be looking for absolute credit perfection for a zero down mortgage your income must be solid and stable so if you’re in a casual or a part-time or a seasonal job that’s really not the type of client that they’re going to be looking for if that’s the case you’re gonna definitely have at least have your minimum 5% down payment of your own funds.
Other Costs
Though you’re getting your down payment from a line of credit or a loan, you’re still gonna have to have at least a little bit of savings. Typically the lenders are going to want to see that you have enough to cover what’s called the closing costs. Now, these are the legal fees and land title transfer costs that all Canadians pay for when they purchase a home. And sadly, there is no way around closing costs.
Closing Costs in Ontario
The lenders here in Canada use 1.5% of the purchase price as a high-water mark all across Canada. So they use that as an estimate no matter where you live.
Cancellation of Pre-approval
In order to avoid cancellation of your pre-approval of no down payment mortgage, You’re also going to need to demonstrate that you can afford the payment mortgages on the line of credit or loan that you’re taking out to access the down payment. Now the loans can vary based on the interest rate and the term of the loan.
The payment mortgages are a little bit kind of move around a little bit but with a line of credit it’s typically 3% of the balance is what we have to use. If you’re taking out a line of credit to get to your down payment funds then we need to use three percent of the full drawn amount that you’re going to be using for your down payment,
It’s for that reason that somebody who’s been pre-approved for no down payment mortgage for the purchase of a home where the zero down payment loan actually gets pre-approved for a little bit less because you have to demonstrate that you can make those payments on that extra credit item. So it’s going to knock down your pre-approval.
Zero Down Payment Mortgages Amount
Just four easy numbers let’s say I’m doing a standard purchase mortgage with somebody who’s got down payment in their RRSP or in their savings and they’ve come to me to get pre-approved. Based on their income I’m able to pre-approved them for the purchase of a home no more than say $250,000 dollars.
Now that same client if they didn’t have access to the down payment funds and they were getting a flex down mortgage then they would actually only be pre-approved for $225,000 so the extra little bit of payment does knock down the amount that they can borrow, that’s not the only downside for the Flex type program if you’re purchasing a home you’re getting a mortgage under Flex down, then the mortgage insurance premium more commonly known as CMHC fees is the percentage is a little bit higher it isn’t a whole bunch higher it’s only higher by 0.5% but it does add up so on that same previous example of $250,000 that’s an extra $1,100 added to your mortgage just for going through a flex down.
Interest Rate in Flex Down Mortgage
The good news with this Flex down program though is that your interest rate doesn’t have to suffer so you get the same interest rate for a flex down mortgage as you would for somebody getting a mortgage with their own down payment funds so no downside when it comes to long term debt on the mortgage component.
Flex Down Mortgage Program Benefits
I’ve gone over some of the downsides with the Flex down program so let’s go over some of the upsets:
Early Mover Advantage
The primary one is that you get into the real estate market sooner and there can be a big upside to that it depends on what the real estate market is where you’re looking to buy.
If the real estate market stays fairly level and while you save up your down payment the purchase price of the house that you’re looking at hasn’t really changed very much over the time you’ve saved well there’s not really much of a downside there.
However, if the real estate market goes up by even only 2% so that two hundred and fifty thousand dollar house now after you’ve saved it up is now two hundred fifty-five thousand dollars so an extra five grand is what you’re paying for the house and you certainly haven’t paid that extra amount upon the Flex down mortgage unless you don’t pay the debt off in a timely manner you could end up getting a much lower interest rate if you purchase under a flex down now rather than waiting until you’ve saved up.
So if you wait two years say mortgage interest rates go up by a half or a three-quarter even a full percentage point well your savings really isn’t there at all you’re gonna be paying much more on interest in the meantime rather than taking the Flex down and paying a little bit extra for that another benefit is stop paying off somebody else’s mortgage why not pay off your own.
Paying for Own House Not Others
Getting into the real estate market and having your own mortgage and your own house and paying off your mortgage is a far better plan than paying off somebody else’s for two to five years while you save up your down payment funds. The sooner you purchase a home, that you start paying off your own mortgage, the younger you will be when you are mortgage free.
Final Words
If you live in Canada and you’re looking for mortgage financing, I would be more than happy to help you; please get in touch with me. I’m looking forward to hearing from you. You can contact me via email at: info@saifabdulah.ca and via mobile at 416-312-3546. I will give you a call and we will discuss your needs at length. Certainly, you can check out my website: saifabdulah.ca and I wish you the best in your future endeavours.
Please don’t forget to leave a comment, click like or tweet this article if you found it interesting, and check the Frequently Asked Questions down below for more insight into no down payment mortgage industry.
Thank you for reading and good luck with your next home!
FAQs
What is the CMHC fee?
The CMHC fee, or the mortgage default insurance premium, is a percentage that is added to your mortgage for going through a Flex down. The percentage on mortgage default insurance is a little bit higher than if you were to get a mortgage with your own down payment funds, but it doesn’t add up to much more. The interest rate for a flex down mortgage is the same as for somebody getting a mortgage with their own down payment funds.
What are the benefits of the Flex down mortgage program?
The main benefits of the Flex down mortgage program are that you get into the real estate market sooner and you have the potential to save on interest rates. The sooner you purchase a home, the sooner you start paying off your own mortgage, the sooner you will be mortgage free.
What if I wait to save for 5% down payment instead?
If you wait two years or more the purchase price of the house may go up by a percentage or two and you’ll be carrying more debt.
What are the qualifications for Flex down mortgages in Canada?
The only qualification is that you must have been a Canadian citizen or permanent resident for at least 5 years. It’s also great to have a good income, you need to prove that you are capable of paying back the zero down payment mortgage.
Where is the best place to buy a house in Canada?
The best place to buy a house in Canada depends on what your criteria are and where you wish to live. Contact me and I will give you best deals countrywide even if you don’t have down payments or any personal loan.
What is the average price of a house in Canada?
The average price of a house in Canada varies from city to city and province to province. The average price in Canada is around $300,000.00. And minimum down payment for that will be $15000.
What are payment mortgages?
Payment mortgages are mortgages where your monthly payment is evenly divided between principal and interest.
What are down payment mortgages?
Down payment mortgages are mortgages where your monthly repayment is greatly divided between principal and interest. Getting into the real estate market with down payment mortgages will save you thousands of dollars and allow you to pay off your mortgage much sooner than if you were to use a payment mortgage.
What is payment assistance program?
The payment assistance programs are a provincial program that assists people with their down payments, or their monthly mortgage payments. In many cases the government will give you up to $550.00 extra per month towards your monthly mortgage payment if you’re using the program. There is no down payment assistance program as of yet to buy a house.
Why is credit score so important? What if I don’t have good credit score?
Credit score tells lenders how likely you are to repay your debts and it’s used by lenders all over the world. If you have a low credit score, the chances of you getting a low rate will be slim to none.
Why do I need mortgage insurance?
Mortgage insurance is there to protect you should anything happen to you while you’re making your monthly payments. For example, should you get injured and cannot work again, this mortgage insurance will cover the monthly mortgage payment and other expenses until you’re able to use your income again. it is available for low down payment mortgage as well as conventional mortgage. There are better payment loan options with conventional mortgages.
If you want, any private mortgage insurance will help with this.
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