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

* Interest Only FIXED PRODUCTS

There are many products available now if you’re interested in keeping your monthly payment as low as you can. With the extended amortization’s available now, it is quickly taking place of interest only, but they are still offered by a few lenders.

* Interest Only HELOC’S [HOME EQUITY LINES OF CREDIT]
There are several lenders that will offer HELOC’s. Most lenders will require that a portion of your mortgage amount be locked into a fixed portion and the balance can be in the form of a HELOC. If you are looking for a full HELOC registered against your property, you should prepare yourself for additional fees. Most lenders do not fairly compensate mortgage brokers for these types of deals or will enforce a commission claw back so you should be prepared to pay a broker fee when asking for this type of product.

* Variable Interest Rate Mortgages (VRM)
There are several lenders with many desirable products. There is a certain type of consumer that best suits a VRM, and others that don’t. A new young family with a set income may not have the flexibility to handle the ebbs and flows of VRM’. They are best suited for people with a certain amount of equity in their home OR strong investment portfolio’ and growing net worth. To be able to fully take advantage of a VRM, one must be able to weather the storm of the ups and downs of Prime and Bankers Acceptance rates.

* OPEN Variable Interest Rate Mortgages
This product is basically the same as the VRM above, however it is considered “open”. If you pay out this mortgage early, there may be a penalty of $500 or up to 2 months interest associated with it. Some lenders will not have any penalty at all. Again, as with the HELOC, lenders do not fairly compensate mortgage brokers for this product and you should be prepared to pay a broker fee when asking for this product.

* Extended Amortization’s
There are now amortization’s available up to 40 years in Canada. This allows people to buy more house for their money. I do not recommend people getting a 40 year amortization once they find their ‘forever’ home, but for the properties you do not plan to pay off, it is the perfect tool.

If you are unsure of what is best for you, please give me a call and we can determine what product best suits your long term goals for your family and the future.