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If you’re thinking about buying your first home, you’ve most likely been saving for quite some time. But what if you have an emergency and have to spend a big portion of your savings? Would you have to save for the down payment for a number of years? The answer is no; you can still buy a house without a down payment.
Every mortgage in Canada necessitates a down payment; it’s an inevitable fact. Is it possible to receive a mortgage with no money down? Is it also a smart idea to get a mortgage with no money down?
This article will teach you everything you need to know about mortgages with no down payment. However, a word of caution: obtaining a mortgage with no down payment is often a bad choice. If you’re considering getting one, you should definitely go to a certified mortgage broker first.
While the Canadian government outlawed zero-down payment mortgages in 2008, you can still get a mortgage without putting down any money by borrowing the minimum down payment.
The only option available today, known as Flex Down, permits you to borrow your minimum down payment, usually between 5% and 10%, using your credit card or another line of credit. These loans, as you might expect, are riskier and more expensive than typical mortgages.
The next question to come to your mind will be whether I should go for it or not? What are the implications involved? And what whether buying a house with no down payment is worth the cost or not? So, here are the answers of all your questions.
Should You Buy A House Without Down Payment in Canada?
The short answer is no – getting a mortgage with no down payment is generally not a good idea. While it is legally possible to obtain a mortgage with no down payment, doing so is extremely difficult — and that is by design! Here are some of the reasons why they might not be a good idea:
The first reason to avoid these mortgages is that they will leave you in a lot of debt if you don’t have a home equity buffer. Even a 5% down payment will leave you with some equity, which will allow you some breathing room if you need to sell your property quickly.
Higher CMCH insurance prices: A mortgage with a minimum down payment of borrowed money also has higher mortgage default insurance premiums. All mortgages with less than a 20% down payment are required to have insurance, however insurers such as the CMHC** often charge an extra.50 percent for premiums on zero-down mortgages.
Another disadvantage of a zero-down payment mortgage is that you will have a lot more debt to pay interest on. If you use a credit card or similar unsecured line of credit to make the 5% minimum down payment, you’ll be charged a high-interest rate. At a normal credit card interest rate of 20%, 5% of a typical mortgage might result in thousands of dollars in extra interest each year!
How to Buy No Down Payment Mortgage House?
If you have made up your mind and still want to pursue a no down payment mortgage, here is what you will need.
You’ll need to choose a lender that offers Flex Down mortgages because not all mortgage providers do. The majority of mortgage brokers will be able to assist you in finding one.
A very good credit score: To get approved for a no down payment mortgage, you’ll need a significantly higher credit score than the average borrower — something north of 680 is desirable.
Excellent credit history: Your prospective lender will want to see several years of perfect payments history in addition to your credit score. That ensures you’ll never miss a payment!
Sufficient and consistent income: You’ll need to show that you have enough money to cover all of your bills, as well as a track record of consistent income. The longer you’ve worked full-time, the more likely you are to be authorized.
Strong debt ratios: Your lender must be confident that you will be able to service your mortgage payments as well as your other debts, including those incurred as a result of borrowing the down payment. This is calculated using your debt ratios.
How To Buy No Down Payment House in Ontario?
To begin, you must understand that the lender with whom you borrow the down payment should have no ties to the property. In other words, the bank that provides you with a mortgage will not be able to grant you the funds for a down payment.
Let’s take a look at the two most important prerequisites for a no-money-down mortgage.
- You should have a credit score of at least 650, with a score of 680 being optimal. You must also have a positive credit history. Buying a house with no down payment and good credit is easier than with bad credit.
- A solid job is necessary to assure the lender that you will be able to pay the loan on time each month. This is not a viable alternative if you don’t have a steady income.
Once you fulfill these requirements, the process of buying a house with no down payment in Ontario is similar to that stated above. Now, the only thing left doing your search to find your dream house.
The Bottom Line
A no-money-down mortgage is not the best option to buy a house, and you should avoid it if at all possible. Buying a cheaper property, taking more time to save for a down payment, or continuing to rent are all possible options. You should stay away from zero down payment mortgages because they come with a lot of charges and risks.
If you are looking to buy a house with no down payment, you can talk to our mortgage broker and see what suits you best. At Lionsgate, we specialize in helping people obtain funding private mortgages for land purchases as well as for other real estate transactions. If you are looking to buy land in Canada, get a mortgage or apply for a loan, leave us a message and we will try to connect you with local realtors and sourcing for financing.
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