Buying a House with No Down Payment
Buying a house requires a significant amount of financial support, which means that to start house hunting, you need a good savings account. But, even when you are committed to the goal of being a homeowner, there are things that no one could anticipate, such as a family emergency, a recession or in our current case, COVID. Factors like this could result in not having the minimum down payment for a home saved. Luckily, you have the option of buying a house with no down payment.
Yes, you are not reading it wrong. You have the possibility of buying a house in Ontario with no down payment. Before making this decision, you need to be sure there is no way you can make the down payment from the money you have available right now. In case you don’t know how much the down payment is for a new property, here we have some data to help you out.
The down payment for a house is calculated from the purchasing price, and it would be:
- 5% - houses that cost 500,00 or less
- 10% - houses between 500,000 - 999,999
- 20% - houses equal or above $1 million
If, according to these percentages, you can’t make the down payment, then we are going to explain to you how to buy a house with no down payment.
Can I buy a house with no down payment in Canada?
That's right, buying a house with no down payment in Canada is possible. However, this doesn't mean you won’t have to make a down payment on itself. We know that this might sound confusing, but everything is going to make sense in just a few seconds.
When you want to buy a property in Canada, according to the law, you will always have to make a down payment. But, some buyers decide that instead of making the down payment from their money, they are going to borrow it. This is known as a zero down payment mortgage.
The most popular option that is available for Canadians right now for buying a house with no down payment in Ontario is called Flex Down.
How it Works: Buying a House with no down payment
The whole process of buying a house in Ontario with no down payment is the same as if you had that amount saved. The only difference is that in the end, you only need to pay the closing fees.
Your mortgage you will get from the bank or a lender, and on the closing date, your lawyer will transfer those funds to the seller. In regards to the down payment, you can borrow the amount from a lender different from the one who will give you the mortgage.
After you find that person, then you handle that down payment as a loan you will have to pay monthly. You will notice that there are parts of Ontario where the real estate market is more expensive, such as inside the GTA. But, if you are a first-time homeowner and you want to look for more affordable options, read more here.
Is it wise to buy a house with no down payment?
Technically, no. The reason why buying a house with no down payment in Canada is not the best option is because you will have more debt. However, this is not necessarily a bad thing if you don’t have any more loans and you have a stable job.
We understand that buying a house with no down payment in Ontario is a decision that is going to impact your financial life. That’s why we have decided to give you some pros and cons to help you determine the best option for you.
Pros
Say goodbye to rent
Even when every month you have to pay the lender who allows you to borrow that 5% for the down payment, that money will go into your investment, your home. Rather than paying rent for an apartment or a house you are never going to own.
No mortgage default insurance
When you borrow the money for your down payment, you won’t have to pay for mortgage default insurance. This means you are going to save a couple of thousands of dollars.
Increase your assets
We know that being a young homeowner can be scary since you will have a great amount of debt and bills to pay every month. But, if you look at it as a way to increase your wealth, the scenario changes. The sooner you purchase a property, the quicker you start building equity.
Cons
More debt
It comes with no surprise that the worst part of buying a house in Ontario with no down payment is that you will increase your debts. This could result in many monthly payments where you end up spending your income. Plus, the type of mortgage you could apply for, will be limited.
A higher interest rate
This is probably the worst part of borrowing money for your down payment. For this type of loan, you will notice that the interest rates could even be higher compared to your mortgage.
Required conditions
To apply for a zero down payment mortgage there are a series of conditions you need to meet. Even when there is not a lot of them, it is not easy to have them all. We will tell you all about these conditions in the next section.
How can I get a no down payment mortgage?
If you want to buy a house with no down payment, there are certain requirements you should meet.
Credit Score
This aspect can vary depending on your lender, but one thing you need to know is that your credit score needs to be better than the average. At least you need to have a score of 650, and the ideal would be 680.
Here they will also take into account that you have a perfect credit history, which means you have never missed a payment on one of your debts.
Having stable employment
If you have a full-time job, this gives you more chances of applying for a mortgage with zero down payment since the lender will know you have a stable income.
Finding a Flex Down
There is not a great number of lenders who offer loans for a down payment, but you can ask brokers to help you find one.
Conclusion
In Canada, you have the possibility of buying a house with no down payment, with a Flex Down. In case you don’t find one, you can consider options such as a line of credit, personal loan, or even borrowing the money from a family member. What you need to keep in mind is that in the end, all the debt you will acquire is for a home you will own.
A final note: if you are thinking of purchasing a house, always prepare before house hunting and have all the financial aspects ready.
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