Is It Possible To Get A No Down Payment Mortgage?
BY: DAREN ANGELES
In Canada, every mortgage requires a down payment. But is it possible to get a no down payment mortgage? If so, would it be a good idea to get a mortgage with no down payment?
This article will provide you with everything you need to know about no down payment mortgages. Spoiler alert: It is usually a bad idea to get a no down payment mortgage, but it is still possible. So, if you are thinking about one, it is best to speak to a licensed mortgage broker first.
Do they exist?
Kind of. The Canadian government outlawed the zero down payment mortgages in 2008, it is still possible to get a mortgage without a cash down payment by BORROWING the minimum down payment.
There is an approach available today, called “Flex Down”, this requires you to use your credit card, or another line of credit, to borrow your minimum down payment, typically 5% to 10%. And yes, these loans are riskier and more expensive than traditional mortgages (Minimum down payments range from 5%-20% depending on the purchase price.)
Should you get a zero down payment mortgage?
The short answer is no. It is generally not a good idea to get a mortgage with no down payment. It’s still technically possible to get a zero down payment mortgage, it’s just harder to do and more risk to it. Here are a few reasons why they are a bad idea.
Lack of home equity: These mortgages will leave you in a lot of debt without a home equity buffer. Even a 5% down payment will leave you with a little amount of equity, which gives you enough room if you needed to sell your home in a hurry.
Higher CMCH insurance premiums: A mortgage that uses borrowed money typically make the minimum down payment incurs higher mortgage default insurance premiums. Coverage is compulsory for all mortgages with less than 20% down payment but insurers like the CMHC usually charge an extra .50% for premiums on a zero down payment mortgage.
Additional interest: Another thing about a zero down payment mortgage is you’ll have a lot more debt to pay interest on. If you borrow the 5% minimum down payment from a credit card, or another line of credit, you’ll be charged a high-interest rate on that amount. 5% of a typical mortgage usually has an interest rate of 20%, which results in thousands of dollars of additional interest each year.
How to get a no down payment mortgage:
If you’re still interested in getting a mortgage with zero down payment, here’s what you will need.
A lender:
Not all mortgage providers offer flex down mortgages, so you will need to find a lender that does. Most mortgage brokers will be able to help you find one.
An exceptionally good credit score and excellent credit history:
You’ll need a much better credit score than the average borrower to be approved for the no down payment mortgage – Around 680 is ideal. Along with that, you will need an EXCELLENT credit history. Your lender will want to see several years of perfect repayment history, meaning no missed payments.
Sufficient and stable income:
You will need to prove that you have enough income to cover all your payments. So, the longer you’ve been employed full time, your chances rise.
In conclusion, a no down payment mortgage is not an ideal way to buy a home. It will leave you more debt to pay and more interest to pay. Taking more time to save a down payment, buying a cheaper home, or continuing to rent are all better alternatives.
If you’re still looking and thinking about a no down payment mortgage, then be sure to book a free consultation with a licensed mortgage broker. They’ll be more than happy to give you expert advice on your situation and find you the best deal possible if you still decide to go ahead
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