For years, real estate has seen an unparalleled boom and prices are only inflating, which makes the dream of owning a home in Canada an almost unattainable reality. However, if you have a stable, permanent job and can pay your rent and your credit cards, what could prevent you from paying a mortgage?
To take out this construction loan, you must pay a minimum amount, the down payment, which is deducted from the purchase price and the mortgage will cover the rest of the price. If you find yourself unable to prepare this amount, we offer you some alternatives that will allow you to buy a house without a down payment.
What is the down payment percentage for a house?
The minimum down payment amount depends on the purchase price of the home. If it’s less than 20% of the purchase price, you’ll need to get mortgage loan insurance. Generally, the down payment is higher for self-employed people or people with a bad credit rating .
This down payment is paid from your finances and generally requires you to save beforehand to avoid indebtedness . The down payment percentage for a house is 5% if the purchase price is less than or equal to $500,000. If the purchase price is more than $500,000, you pay 5% for the first $500,000 and 10% for the remaining portion.
Since 2012, the Government of Canada requires a minimum down payment to be able to acquire a mortgage loan and the rest will be provided to you by your lender. Becoming an owner then became a real challenge. That’s why we are going to discover together different ways to overcome these obstacles to buy a house .
Tips for buying a property with no down payment
Home Buyers’ Plan (HBP)
The federal government has implemented the Home Buyers’ Plan program which allows you to use some of the money you have in your Registered Retirement Savings Plan (RRSP) account for the purchase or construction of a house.
If you qualify for this program, you have the right to withdraw up to $35,000 tax-free from your RRSP account and you can use this amount for the down payment and other the purchase of a house such as notary fees, the purchase of furniture or the transfer tax. This government program allows a couple wishing to buy a house to raise a total of $70,000.
RRSP terms of use
To be able to use the RRSP as a source of financing for your acquisition, you must have a stable and permanent job, but also buy for the first time or have sold your property more than 4 years ago. This sum of money must be in the RRSP account at least 90 days before it is used. The first two years following this acquisition are free of reimbursement but the amounts you have used must be reimbursed after 15 years through annual installments.
Take out an RRSP loan
If you don’t have money in your RRSP, you have the option of obtaining an RRSP loan provided it is your first purchase or you are a former owner who has been selling for more than 4 years. Be aware that only a few lending institutions allow you to withdraw the RRSP before paying the loan in full. If you want this plan to work, you need to educate yourself well beforehand and choose carefully.
In addition, this alternative is accompanied by a risk of over-indebtedness between repayment of the RRSP loan and the mortgage loan as well as the other expenses that accompany the purchase of a house. The good side is that the RRSP contribution impacts your taxable salary and when you file your tax return the following year, you can obtain a tax refund.
Incentive for the purchase of a first property
Through another government program , you can take advantage of the Government of Canada’s participating mortgage, which offers interest-free financing for the purchase of your home. The incentive amount can help you reduce monthly mortgage payments and you can benefit from:
- 5% of the purchase price of an existing property
- 5 to 10% of the purchase price of a new house.
This amount is offered by the Government of Canada and must be repaid after 25 years or when the property is sold.
Participate in municipal programs
Most cities have homeownership programs that serve to help residents buy a home to attract new taxpayers.
You can access it in various forms:
- Purchase credit
- interest free loan
- Discount on real estate transfer duties
- Property tax credit
The Family Access program in Quebec
The city of Quebec has set up the program which gives an interest-free loan without payment equivalent to 5.5% which allows eligible families to become owners of a new construction at a price less than or equal to $300,000. To access it, you must buy a home that is accepted under the Family Access program and meet certain other program conditions.
Get a personal loan or use your line of credit
To prepare your down payment, you can use a personal loan or a personal line of credit. The loan requires regular repayment according to a very specific schedule, while the line of credit remains more flexible and generally benefits from a lower interest rate.
When you present your file, you must calculate in advance the indebtedness related to the line of credit and add your liabilities. The debt to purchase ratio of your property as well as your debts must meet the requirements of your lender.
A mortgage broker can help you with the pre-mortgage checks to be sure that your lender accepts this type of participation and to direct you to the solution that offers you the best interest rate . In addition, it could help you build your file and help you improve your credit rating and develop your budget to be sure to make the best decision.
4.Love Money
This is a gift received from a family member or close friend. It is an eligible source of down payment for the majority of mortgage lenders. You can also use the property of your relatives to use their mortgage as collateral to obtain your down payment. These solutions are very easy and both admissible but rarely used for fear of obtaining a refusal.
If you are already a homeowner, you can opt to refinance your mortgage loan
For homeowners who want to buy another home but don’t have enough savings for a down payment, mortgage refinancing can be very helpful. This solution aims to renegotiate the current mortgage loan to consolidate your debts or cover part of your expenses (purchase of a vehicle, renovation work, down payment, etc.). Refinancing can help you better manage your finances with new terms for your mortgage.
It is necessary to consult your mortgage broker to find out what the conditions are for a refinance and what amount you can use. This solution therefore aims to use one of your properties which has financial solidity in the eyes of the lending institution and can be useful if you do not have enough money.
Grant a collateral loan
Another alternative would be to take out a collateral loan on your home equity and use it as a down payment. We advise you to calculate your expenses carefully before starting this procedure, because you will end up with two mortgages, which is difficult to manage and you risk that your mortgage pre-approval will be refused, which could lead to water your project.
You can consult our brokers to be certain of making the right decision and above all to ensure that you have access to the best mortgage rates .
An ongoing savings plan
A winning savings strategy in place is the safest and most peaceful way to buy your home. You can develop a plan with the help of your financial planner and use the RRSP or TFSA as an investment vehicle. It is important to take into consideration from the beginning your monthly savings capacity, the purchase price of the house, the type of vehicle to choose and the duration necessary to collect the money.
Need
If you need help to buy the house of your dreams, Quebec Mortgage Broker is at your disposal and puts all its experience at your service to meet your needs. You can contact our team who will carefully analyze your financial situation and offer you tailor-made solutions according to your objectives and your lifestyle. Our brokers will be able to negotiate the best interest rates and terms to guarantee expenses that fit your budget.
