No Down Payment – Zero Down Mortgages
You can purchase a home with no down payment…really!
If you have an excellent credit rating and stable income, you may qualify to purchase a property with no down payment using a “cash back” mortgage. All you need to provide is enough money to cover your closing costs and moving expenses (about 1.5% of the purchase price).
How does a zero down mortgage work?
Cash back mortgages work when the mortgage lender provides you, the borrower, a certain sum of money upon funding of the mortgage.
The amount you receive is based on a percentage of the mortgage amount or purchase price and typically ranges from 1% to 7%.
The minimum down payment required is 5%, so therefore the lender provides you with a 5% cash back that is payable to your lawyer on closing and this, along with your 95% mortgage financing, equates to purchasing a property with no down payment. These are called cash-back or free down payment mortgages and can make home ownership an affordable reality sooner thank you think. You pay back the cash back amount over the period of the mortgage by way of a higher interest rate which equates to you borrowing your down payment.
A no down payment mortgage is perfect for you if you:
- Have no down payment saved yet but want to get onto the property ladder sooner and stop paying rent
- Don’t have enough savings for the usual minimum 5% down payment and closing costs
- Found out your RRSP is locked in, so they can’t use it for your down payment using the Home Buyers Plan
- Have some extra debt that you would like to pay off on closing and you want to have just one single mortgage payment
- Have a down payment that is not enough to cover all the moving expenses and new furniture
As a specialist in this unique area of financing, I can walk you thru the nuances of each type of of cash back mortgage or no down payment mortgage available: I’ll explain the pro’s and con’s to ensure it is a good fit for you.
Her are some examples and different scenarios of zero down mortgages:
No Down Payment – 100% Financing
As mentioned before, this is in essence 100% financing. 5% of your purchase price is provided by way of a cash back along with a mortgage for 95% of your purchase that is given to your lawyer on closing of the home. The lawyer then uses the 5% as your down payment and the cash back is reflected in your interest rate. Remember that you still have to find closing costs as well as have enough cash to put a “deposit” down on the Offer to Purchase. Any deposit you put down on your Offer to Purchase is refunded to you, after closing costs, at the lawyer’s office on your closing date.
The interest rate is typically around posted rates however, we often have rate “specials” and discounts with some lenders. We have access to lenders across the country and can shop the rate and product as a specialist in this unique area of financing.
Flex Down or Borrowed Down Payment
This is slightly different to a cash back in that you can borrow your down payment from a line of credit, credit card or personal loan. You can even use “sweat equity” or gifts from arm’s length parties instead. With good credit and stable income, your interest rate will be fully discounted, unlike the cash back mortgage.
Smaller Cash Back Mortgage for Closing Costs
If you have some money for a down payment but may need a smaller amount, by way of say a 2% cash back and not the full 5% down payment, then a smaller cash back mortgage is the perfect mortgage for you. You receive up to 2% cash back on the mortgage to help with the balance of the down payment, furniture or even closing costs…. Maybe a nice holiday or honeymoon! You may even want to use the money to help pay off some outstanding debt for when you move into your new home. This is the middle ground when it comes to rates, with mortgage interest rates just being slightly higher than fully discounted rates.
I can show you “Your Mortgage Options” for your current and future goals. Even when the bank says ‘no’, we have access to lenders that offer lending solutions for hard to place mortgages. Give me a call today for your free and confidential evaluation.
Canada Mortgage Types