Buying a new home can become a necessity for several reasons. Lack of space in your current home, birth of a new child, new job that causes you to move, separation… the list of reasons is long.
You may also be looking to buy your first home: a most exciting project!
Since 2012, however, it is no longer possible to take out a mortgage in Canada without a down payment.
Indeed, it is now necessary to make a minimum down payment of 5% of the value of the property for a financial institution to consider your mortgage application. This amount is 10% if the value of the house you wish to own is over $500,000.
The following question therefore comes up very often: how to buy a house without a down payment?
There are several ways, more or less known, to buy a house without having all the down payment in your bank account. Here they are in our complete guide to the 10 ways to buy a house with no down payment in 2020.
Finance your down payment with municipal programs
To attract new taxpayers to their cities and to help those who already reside there to acquire a property, several large cities have set up home ownership programs.
This is the case of the City of Quebec.
Through the program , the City of Québec makes financial assistance available in the form of an interest-free loan or payment equivalent to 5.5%.
Eligible families can therefore take possession of a new construction loan whose acquisition price is equal to or less than $300,000 (taxes and rebates included).
To do this, new buyers must do business with contractors whose homes are accepted under the program
Other conditions apply and you can contact us to learn more about the program and our eligible homes.
Benefit from the RAP (Home Ownership Plan)
If you’ve never heard of it, it refers to the use of funds available in a Registered Retirement Savings Plan (RRSP) account to raise the necessary down payment.
Thanks to this government program , a couple can collect a total of $70,000 for the down payment on their home, or $35,000 per individual.
To be able to use the RRSP as leverage for financing your property, the necessary sums must have been there for at least 90 days and you must be first-time buyers or have sold your previous property more than 4 years ago.
Finally, it is important to know that the first two years are free of reimbursement, but that the “RAPé” amount must be reimbursed over a maximum of 15 years via an annual reimbursement.
Take out an RRSP loan to access the RAP
If you don’t have money in your RRSP, an RRSP loan can still give you access to the HBP , under the same conditions.
However, you must act with caution and ensure that the financial institution granting the mortgage loan accepts that you withdraw it before it is fully reimbursed.
If this is your case, be doubly vigilant all the same and confirm your ability to repay the RRSP loan in addition to the mortgage and other major bills that arise from the purchase of your home (taxes, notaries, furniture, renovations , etc.).
Finally, the RRSP loan sometimes comes with a happy surprise when you file your tax return the following year. Indeed, the RRSP contribution has an impact on the taxable salary which can give rise to a tax refund.
Receive Love Money
“Love Money” is money received from family or a friend as a gift.
The latter is generally interest-free and non-refundable and the majority of mortgage lenders accept it as a down payment.
It’s also worth noting that if your loved ones own a house or building, these can usually be used as equity (a form of security for the lender in the event of default).
This is one of the ways to get money for your house that is very common, and has been for a very long time.
Love money, however, is one of the ways people are hesitant to use because they are afraid to ask and/or be refused.
Buy from multiple people
By buying several, only one of the buyers can pay the down payment.
For his part, the second buyer must agree to make equal payments to the first buyer or agree on unequal payments if the incomes of the two buyers are different.
There are also several alternatives to determine how the sale of the house will be made (if applicable) if the payments of the two people are unequal.
To determine these alternatives as well as the impact of a different down payment between the two buyers, do not hesitate to ask the necessary questions to your notary.
Use a loved one’s mortgage as collateral
We touched on it above in the “love money” section, but one way to get your down payment is to use someone else’s mortgage, house or building – like a family member or friend.
This technique therefore consists of using what is called a collateral guarantee or a collateral loan to buy with zero dollars in down payment.
Just like the “love money”, it is often and “simply” to ask a relative to access this type of contribution to the mortgage loan.
Set up a savings strategy
This strategy isn’t the fastest, but it’s the wisest of them all.
By meeting with your financial planner, you will be able to put in place a winning savings strategy and thus put money aside for the purchase of your home.
Don’t hesitate to ask your financial planner about how the RRSP works, which will eventually allow you to “RAP” as described in point 2 above.
It is important to note that the TFSA can also be an interesting savings vehicle.
The idea is therefore to present all your future projects to your financial planner so that he can draw up the best game plan for your needs.
Rental with option to buy
Increasingly popular, renting a unit with an option to buy allows you to live in your home before becoming its owner.
This type of financing is generally suitable for people who have had financial difficulties, for newcomers, for students… in short, for people with no credit report or a credit report in poor condition.
In this type of taking possession, the tenant agrees to pay an amount each month (the rent) from which a certain percentage is deducted to contribute to the purchase of the property at the end of the rental contract with option of purchase.
If you opt for this scenario, you will have to determine, among other things, the duration of the lease and the rental conditions, the expiry of the purchase option, the sale price and the applicable fees.
Get a loan or use your line of credit
A personal loan or personal line of credit can be used as a down payment, although not all mortgage lenders accept it.
If your pre-mortgage checks confirm that your lender accepts this type of participation (a mortgage broker can help you with this process), you will still need to present an excellent credit report.
How to choose between a personal loan and a line of credit? The difference is mainly in the frequency of repayment and the interest rate.
While a personal line of credit generally has a lower interest rate and a more flexible repayment frequency, it also requires more discipline than a personal loan which generally comes with a higher interest rate and equal payments.
Refinance one of your properties
Your current mortgage, if you already own a building (or other property that can be taken as collateral), can also be used as leverage for the purchase of a second property.
As we explained in point 6, your first home would then serve as collateral to take possession of your second property.
It is therefore an interesting option if you do not have the necessary cash at the moment.
It is therefore a question of using one of your properties which presents financial solidity in the eyes of the lending institution.
Many options, but which one to choose?
To choose the option that best suits you, you should talk to a mortgage broker and present your project and information about your situation.
Depending on your credit profile and your unique situation, they will be able to direct you to the best option available for you – or a mixture of these.
