Can I Get a Mortgage with Zero Downpayment?
Unfortunately No. There are currently no approved programs in Canada that allow borrowers to secure mortgage financing for 100% of a property's value. A minimum 5% downpayment is required to purchase a property. These rule changes were brought in by CMHC on Oct 15th 2008 in order “to reduce the risk of a U.S.-style housing bubble developing in Canada.” From 2008 - 2012 several lenders offered a "Mortgage Cashback" program which looked a lot like a zero-down mortgage, but in fact borrowers were paying a higher interest rate to have the lender provide the 5% downpayment for them by way of cashback delivered to the lawyer upon closing. This program, despite it's creativity, was phased out in late 2012.
Now, just because you don't have the full 5% downpayment saved up doesn't mean we can't get you a mortgage!
Strategies to Achieve Zero-Down "Out of Pocket"
Although a true zero down mortgage is not available, we would love to help you with one of the following strategies to arrange financing without using any cash from your pocket!
Gifted down payment: If you happen to have a generous family member or two, lenders allow you to use a gifted amount of money as your down payment. The person gifting you the money must sign a gift letter saying that you are not required to pay back the gifted money at any time (you must also sign the gift letter) and they must be a blood relative.
Flex Down: Flex Down is a program that lenders offer that allows you to borrow your down payment (something that, otherwise, would not be allowed). Common sources for borrowed down payment for the Flex Down program are personal loans, lines of credit or credit cards. One thing to keep in mind is that the loan repayments must be taken into account when qualifying for your mortgage, so it could affect the purchase price that you qualify for. You must also have a minimum credit score of 650* to be eligible for the Flex Down program.
RRSP - Homebuyers Initiative: if you are a first time home buyer and have some money saved up in RRSPs, under the Canadian government's Home Buyers Plan (HBP) you can access up to $25000 tax free, to be repaid over 15 years. For more information on this program, check out our blog. No RRSP yet? Consider an RRSP loan to invest, and then after 90 days you may qualify for the Home Buyers Plan.
One consistent requirement for any of these strategies is that you must be able to provide proof that you have 1.5% of the mortgage amount available to cover closing costs such as lawyer fees, title insurance, etc. It won’t necessarily cost that much – in fact, it rarely does. It’s just an indication that you’ve got a buffer in case of unexpected costs. Lenders don’t want to put you in a precarious financial position! These funds must be available in your account prior to your mortgage funding.