In Canada, as per the policy on mortgages, you will need to pay 5% of the total price as down payment, as long as the house you want to buy is of $500,000 or less. The percentage of down payment changes if the price of the house is more than $500,000.

But what if you want to buy a home and can’t afford to pay the down payment immediately? There’s some good news for you, there’s a possibility that you can still get a mortgage loan with 0 down payment.

It isn’t the best option available, however, as it does have a few drawbacks. We’re here to discuss whether you qualify for such a mortgage or not and then discuss whether it’s worth going for a zero down payment mortgage despite its drawbacks. The criteria for such mortgage loans without giving any down payment is difficult to fulfill, to say the least. Let’s get started with the first thing you need to do.

A Self Analysis Of Whether You Are Eligible Enough Or Not

Before applying for such a mortgage, you’ll have to evaluate your own financial status. You need to ask yourself some basic questions:

  • Do I have a stable income to pay monthly mortgage installments on time? If I don’t, I’ll be setting myself up for a worsening credit score, which could prove harmful down the road.
  • Speaking of credit scores, what is mine?
  • Is my current financial status sustainable? If it isn't, do I have a plan to improve it in the foreseeable future?

If you answered the questions above truthfully and were satisfied with all of them, you can then go for a mortgage loan without a down payment. A mortgage lender would also take your financial standing into consideration before closing the deal. Your current financial viability will instill confidence in the lender that you will be able to make monthly payments regularly and on time.

If you find that your answers are not satisfactory, we strongly suggest you not to go for such a mortgage. Waiting for the right time and saving money would be a good strategy to be able to afford the house you want.

4 Ways to buy a house with no down payment

How is it even possible to get a Mortgage without anything down? Well, in Canada, you’re allowed to borrow a down payment amount from different sources to apply for a mortgage. These are the ways you can ‘borrow” a down payment for a new house.

  • Personal Loan: You can apply for a personal loan while applying for a mortgage, simultaneously. Generally, you have to borrow from a different but source but some Canadian banks also offer to borrow the down payment. For example, With the BMO Default Insured Borrowed Down Payment Program offered by bank of Montreal, you can borrow up to 9.99% of the purchase price of your home. However, you must be a first time home buyer.
  • Separate Lender:  You can find a different lender for securing a down payment for your house. Just make sure you’re able to pay them off while making the monthly payments on your mortgage along with other household expenses.
  • From A Relative Or Friend: You can borrow the amount of down payment from a trustworthy relative or friend, who won’t mind getting paid back, gradually and in due time.
  • Government Programs: Depending on where you live, there can be some government programs for people who don't have the money to make a down payment for their home. Do your research to find out about such programs to get one step closer to your dream of buying a home. If you are having problems regarding paying down payment, here is another option available in Canada. The Canadian Government provides a share-equity mortgage called The First Time Home Buyers's Incentive. This program gives 5 to 10% (depending on the home you want to purchase) of the purchase price of your home which can help you afford the house you want to buy even if you don't have the money for a down payment on hand.

Getting a down payment loan - The Lender’s Eligibility Criteria For You

Not only do you need to satisfy your mortgage lender, but also the individual or institution who will lend you the amount for your down payment. Before giving you the down payment, the lending individual or institution will consider following things.

Your Credit Score

The first thing that a lender would do before any discussion on the loan, would be to check your credit score. Your credibility as a borrower depends on it. In Canada, you must have a score of 650 to get the loan for the down payment from an institution such as a bank. If you have any missed payments and they show on your credit history, your request for the loan is more likely to get rejected.

Your Financial Standing

The lender would like to see your source income. They would prefer it that you have a stable source of income from a well-paying job or an established and reputable business. They might evaluate the sustainability of the job as well. The more financially stable you are, the higher the chances of securing a loan.

Knowing How Much Other Expenses Cost

Even if you don't have the down payment, that's fine – the no down payment mortgage policies are designed for you. Even then, you still need to pay the other expenses such as legal fees, tax adjustments etc.

Experts say that you need to set aside at least 1.5% of your new home’s price for other expenses. The lender would take into consideration if you’ve made such an allowance, too.

Drawbacks Of The Zero Down Payment Mortgages

The no down payment mortgage is for emergency situations and, as mentioned earlier, there are some drawbacks if you do decide to go through with it.

Getting a mortgage with no down payment sounds great but it clearly doesn't mean you can get away with paying nothing as a down payment. You still have to pay the down payment but you can get the money for it through different sources.

Going for such routes to get a down payment means getting into more debt. This is why lenders want to know that you’re financially stable and can pay them back regularly and on time.

It Is Important To Do Proper Research About The Lender You Are Going to

Applying for a loan become a necessity for many Canadians, especially those looking for home ownership. Most of the Canadians go for a loan at least once in their lifetime, be it for buying their home or car or for other reasons. However, the process for getting a loan can be very hectic and complex. When someone decides to go for a loan, the first thing that comes to mind is to choose a lender who can be trusted. Unfortunately, there are many people in the market earning a living by scamming people out of their money. We strongly recommend you to check a lender's profile properly before approaching them.

You can look for a few things before considering any institution or a lender. Firstly, check their online presence - website or social media pages. Check their socials thoroughly and see what people are saying about them. Check reviews to get an idea what other people are saying about their experiences with these lenders.

Most big banks are less doubtful and more reputable and you can trust them. But, when it comes to small companies and individual lenders, the stakes are higher, which is why you need to be extra careful.

You can also ask people around who have been to them before. Moreover, once applied, be very cautious while signing any papers and take proper care of legalities. You can even take help from any legal expert regarding this process. In a nutshell, be mindful about everything, do proper research and never show them that you are naive or you are completely clueless about the process.

Without proper due diligence things can take a turn for the worst pretty fast – dreadful scenarios where terms and conditions at the time of loan approval are pretty workable, highly customized and offer numerous switch-over product plans. But once your application is approved, then the terms and conditions are not only abruptly revised, but are morphed into difficult choices for the applicants to sift through.

Is Buying a house with no Down Payment for you

One thing that stops most of the Canadian from buying their new homes is the 5% that they have to pay get a mortgage for it. It may be even be too hard to manage for some. The rise of property prices in Canada has made it nearly impossible to afford the down payment on some properties.

Although you can get a home with no down payment and it may sound fascinating, it’s not as simple as you’d think it is. There may be some complications.

As mentioned earlier, make sure to check your eligibility before going for it, self-evaluate whether you are able to pay the loan back or not. Otherwise you may just fall into a never-ending debt trap. You can also get help from a mortgage expert. Their guidance will save you from a lot of troubles associated with no down payment mortgages.

We’ve conveyed a lot of basic information through this particular article, from self-analysis and eligibility criteria, to the ways to access such programs and their drawbacks. Now it's up to you to make a decision about what route to take, to buy your new home successfully in Canada.