What if I don’t have a down payment?

Are you renting or an existing owner and you would like to purchase a home but simply don’t have the down payment? There are a number of solutions to this problem that I would like to share with you but first I should suggest what not to do. Yes there still are a few options to get you a zero down mortgage immediately but they are not in your best interest.

The government of Canada made it illegal for lenders to provide a mortgage with no down payment. The minimum down payment in Canada is still 5%. There are however a few lenders still “creatively” offering a zero down mortgage but many people (and brokers) don’t understand the negative implications of this. Not only is it a danger purchase a home that is already leveraged as high as it can possibly go but the cost to do this is huge.

How this program (that I don’t recommend) works is as follows:

  • The lender literally gives you 5% as a way around the new government rules
  • They increase your mortgage interest rate on the entire amount to a rate they equates to you paying 100% interest on that 5% down payment
  • Essentially you have to pay $20,000 in order to get $20,000
  • You are not allowed to cancel this mortgage before the end of the 5 year term or you have to pay all the money back and a penalty

Instead we offer much better solutions:

  1. LOC (line of credit) advancement: Obtain a LOC (line of credit) from your branch for the required amount and immediately place the funds into a savings account. You will begin to pay the interest payments. This total is added to your liabilities and does work against your ability to qualify but technically after 3 months, this money is considered yours and can be used for down payment.
  2. Forced savings account: Figure out how much you need to purchase your home, divide it by the amount of months for your goal to purchase (12, 24?) and set up a forced savings account to automatically draw the funds from your pay cheque. I suggest setting up the forced savings account in a way that you can’t withdraw the funds until 7 or more days has passed from your request. This will avoid any unnecessary withdraws while in Las Vegas.
  3. Gifted funds from a family member: Probably the quickest and easiest solution if you have this available

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Remember to Own Your Life and have a nice day!

Best Regards,

Jessi Johnson

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