Down payments have been for long become a barrier that has prevented many people in Canada from acquiring their dream homes. The traditional form of borrowing a mortgage often involved a down payment of up to 20% of the home ownership value.
Over the last few years, Canadian Mortgage market introduced a $0 down payment mortgages and cash backs that made it easy for people to access mortgage without any down payments. Unfortunately, the policy did not last for long, and it’s no longer available. But are there other alternatives to getting a mortgage without a down payment? Yes, there is.
If you have a good credit rating, better employment history and good total debt to income ratio, then you can get a mortgage without any down payment. The Canadian Mortgage market has come up with high-ratio insured mortgage tailored for first time home buyers. They have created first Home Buyer’s Plan (HBP).
Under this program, you will have the opportunity of getting a mortgage without the required 20% down payment. This mortgage is insured and regulated by the Canada Mortgage Housing Corporation, Genworth Financial Canada or the AIG.
The high-ratio insured mortgage will cover up to 95% of the home purchase price, and your bank is supposed to finance the other 5% down payment. For you to qualify for a high-ratio insured mortgage, you must prove that you are in a better position to repay the mortgage together with other extra charges that come with home ownership like taxes and utilities.
Use of unsecured line of credit (LOC) is also another way of obtaining a mortgage without a down payment. This option works best for people with better credit scores, and they have high ratings overall. When using the unsecured line of credit, you can borrow either half or full down payment depending on the lenders willingness to take the risk. If your credit score isn’t ideal, there are mortgage brokers who can help you secure a line of credit along with your mortgage so that effectively you’re paying 0 down for your home.
In processing such a case, your total income to debt ratio is used to determine the percentage that a borrower can qualify. Therefore, this option can work better for you if you are expecting to get income soon. The benefit of the unsecured line of credit is that it offers affordable interest rates (prime + X% based on situation) and it’s always advisable to repay the loan on time to avoid huge debt burdens in future. Note that when you opt to go for the Unsecured line of credit, you will be required to pay a higher amount of CMHC insurance premium compared to the down payment made from you own savings.
If you own a home, Home Equity Line of Credit is the best option for you. You can refinance your home and use this as a method of getting your down payment. The only limitation with this form of refinancing is that you can only get up to 65% of your home value. In situations where you want to change your home into a rental, or you are planning to move to your new house, it’s often combined with a mortgage to refinance up to 80% of your home value.
PrestoMortgages are experts at 0 down mortgages, contact us today and we can help you get the home you want!