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The dreaded down payment often keeps young Canadians from being able to afford their first home for years and with the price of houses rising in many of the major cities, even 5% of the purchase price is typically a larger number than most people are comfortable with. So when you hear about the possibility of a no down payment mortgage, it’s completely understandable that you’ll definitely want to consider it as an option.
Here’s everything you need to know about the no down payment mortgage, to make the best choice for you and your finances.
Visit this page to find out the cost of buying a house in Canada.
Purchasing a home with no down payment saved doesn’t mean that you don’t have to make a down payment; it simply means that you’re not using your own hard-earned and saved cash to pay for the down payment. It means you’re going to borrow your down payment (at least 5% in Canada), which in return means you’re taking on even more debt. This is why it’s important that you’re in good financial standing before you take on even more debt than is technically necessary.
A no down payment mortgage works exactly the same as a regular mortgage expect no money is required at closing. The only cash you’ll need is the amount needed to cover the standard closing costs. Your mortgage and down payment will both be funded by a lender. However, the government doesn’t allow Canadians to borrow their down payment from their mortgage lender if their lender is a bank or federal trust company. As such, you’ll have to find an alternative lender instead for your down payment. Once you find an alternative lender and get the financing you need for a down payment, you simply make payments to your alternative lender, like you would the bank for your mortgage.
There are a few different ways you can get a down payment without having to save for it:
|Saskatchewan||National Affordable Housing Corporation’s Down Payment Assistance Program||Click here|
|Nova Scotia||Down Payment Assistance Program (DPAP)||Click here|
|Manitoba||Down Payment Assistance from Manitoba Housing||Click here|
|New Brunswick||Home Ownership Program||Click here|
|Prince Edward Island||Down Payment Assistance Program (DPAP)||Click here|
|Canada||First Time Home Buyer Incentive||Click here|
Borrowing for a down payment has its advantages, however, just the same, it can come with a number of challenges as well.
Being approved for a no down payment mortgage can be a challenge. However, there are a few factors you can work on to improve your chances of being approved.
Check out these hidden costs of buying a home.
A no down payment mortgage sounds like a great idea, especially if you’re currently giving away a large chunk of your income to rent an apartment while trying to save so you can purchase your first home. But before you’re seduced by the idea you need to decide whether or not this financing option is the best strategy for you at this point in your life. There are a few conditions that should be met before you should consider a no down payment home loan:
If all of these conditions describe your current financial situation then a no down payment mortgage is, in fact, a good idea and you could potentially seriously benefit from it, just remember that while you might think you can handle it a lender still needs to decide whether or not they agree.
Unfortunately, if none of the above conditions describes you and your current financial situation then a no down payment mortgage is definitely not a good idea for you right now, we suggest you continue to save while rethinking your current spending and saving strategies.
Find out if you should buy or rent?
If you’re currently trying to save up for a down payment on a home and are having trouble with how long it’s taking then now is the time to look into the possibility of purchasing a house with no down payment. Deciding early on is a great idea as it will allow you to take your time and make all the necessary plans and take all the appropriate steps.
Just remember that purchasing a house without any cash on hand is a serious decision and that qualifying for a mortgage and another loan to cover your down payment doesn’t mean that it’s the best option for you, take your time and consider all scenarios before you take the plunge.
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