Buying a home is an important project that requires good planning and, above all, financial strength. The down payment is one of the most delicate steps in this process, as it is a large sum of money to pay.
What is a down payment?
A down payment is the minimum amount you must put down to purchase a home. This amount depends on the purchase price of the house, and the mortgage loan covers the rest of the value. The larger the down payment, the smaller the mortgage. This amount has a direct impact on the mortgage payments you will have to make later on for the purchase of the house.
What is the down payment percentage for a house?
In Canada, the down payment percentage must not be less than 5% of the purchase price of the house. However, if this amount is less than 20% of the purchase price, you will have to take out mortgage loan insurance. The down payment allows you to reduce your monthly payments, so the higher the amount, the less you will have to pay.
Why does a lender require a down payment for a home purchase?
The down payment provides security to the lender by demonstrating that you are able to respect monthly payments. In fact, the down payment tends to be higher for people who are financially unstable, self-employed and people with a bad credit history.
9 ways to buy a house with no money down
We offer 9 solutions to help you buy the house of your dreams, even if you don’t have the money for a down payment. You can use the help of a financial planner to help you choose the type of financing that suits your situation.
Use a mortgage with a private lender
Private lenders offer an attractive alternative for anyone who wants to achieve a real estate project quickly and easily. Raising an amount that is at least 5% of the purchase price can be quite difficult and often requires saving for several years. Private lenders allow you to benefit from loans that are much more flexible. These financing solutions are ideal for anyone with a bad credit rating who wants to buy a home.
Provide a collateral loan
You can enlist the help of a relative who has a mortgage or owns a home to provide a collateral guarantee. This guarantee can help you obtain a mortgage without a down payment and facilitate the purchase of a home. Gifts from relatives can also be used to fund the down payment by getting rid of the transfer taxes.
Use a personal line of credit or a personal loan
This alternative is useful to facilitate the purchase of a home. A personal loan or line of credit is used as a down payment to speed up the process of buying a new home. However, lenders can be reluctant and require many conditions to accept this solution. It is therefore essential to verify your eligibility and, in most cases, to have a good credit rating.
Before embarking on this alternative, it is wise to seek the help of a mortgage broker in order to accelerate this process and to perform all the pre-mortgage checks. Be aware that a personal line of credit offers lower interest rates and greater flexibility, but requires great discipline.
Benefit from the HBP
The money you have in your Registered Retirement Savings Plan (RRSP) can be used to buy a home with no down payment. The Home Buyers’ Plan (HBP) is a government program that allows you to withdraw up to $35,000 per person from your RRSP, which is equivalent to $70,000 for a couple.
This sum of money can facilitate the acquisition of a new residence under certain conditions:
- You can only use money that has been in the RRSP for at least 90 days.
- You must repay the amount withdrawn within 15 years of use.
- You must be a first time buyer or have sold your previous home at least 4 years ago.
Take out an RRSP loan
For people who have not saved enough money in their RRSP, obtaining an RRSP loan allows them to access the HBP program. This solution comes with the same conditions as the ones mentioned above. On the other hand, you have to make sure that your lender accepts that you withdraw the money from your RRSP before you have paid it back.
Buying a house involves many expenses such as notary fees, work and taxes. It is therefore important to do your calculations before committing to an RRSP loan and to check your ability to repay. The advantage of an RRSP contribution lies in its impact on your taxable salary. You can therefore benefit from a tax deduction.
Refinance a mortgage
If you are thinking of buying a home when you already own a building or a house, refinancing your current mortgage may be the ideal solution. The equity built up on the building can be used to leverage a new property. It is a security blanket for lenders, and the refinancing money can help you with the down payment and speed up the purchase process.
Participate in municipal purchasing programs
Many cities in Canada have at least one homeownership program to help residents buy homes. In Quebec, for example, the Accès Famille program offers financial assistance equivalent to 5.5% in the form of an interest-free loan. This program is aimed at families who wish to purchase a new construction with a purchase price of less than $300,000.
Become a homeowner with several people and share the purchase price
When several people decide to buy a house, only one of the buyers needs to pay the down payment to start the process. Then, all the buyers will have to share the monthly mortgage payment. Buyers can agree on equal or unequal payments depending on their income. It is a good idea to ask your notary about the alternatives available to you.
Opt for a lease with purchase option
This financing solution is becoming increasingly popular with people who have just moved to a new city or students who need time to settle in and raise money. Leasing a property with an option to purchase provides you with a place to live before you own it.
As a tenant, you agree to pay rent on a monthly basis. From this rent will be deducted an amount that accumulates over time to finance the purchase of the house. The terms of the lease with option to purchase are very important to detail in particular:
- The duration of the lease
- The rent
- Rental conditions
- The sale price of the property
- The expiration of the call option
- Other expenses to be taken into account
At Refinancement Hypothécaire, we work to help you find the best solutions that allow you to reach your goals while respecting your financial health. Even if you are turned down by a lender or declared ineligible for a loan by a financial institution, our mortgage brokers can offer you alternative solutions.
Our experts take the time to analyze your financial situation and estimate the expenses required to purchase a home in order to offer you personalized solutions. An alternative loan from a private lender can help you buy the home of your dreams while respecting your finances. Our brokers will guide you towards the best choice that fits your situation.
In some cases, mortgage refinancing offers an attractive alternative that allows you to re-borrow money to finance new projects. This source of credit can be used to cover the expenses necessary for renovations or the purchase of a new property. Our experts will be happy to offer you the necessary advice and help you make an informed choice.