How to buy a home with no money down in Canada?
Is it really possible to buy a home with no money down in Canada? Unfortunately, the answer is ‘No’.
The zero-down payment mortgages programs no longer exist in Canada. As of September 2012, people require paying at least 5% down payment of their total home loan amount.
So, is there any way around this? Luckily, The answer is ‘Yes’. There are many ways to help you raise money for your minimum down payment.
If you have been saving for your retirement, then you can use the Home Buyers’ Plan to withdraw up to $25,000 from your personal RRSP, and another $25,000 from a spouse (under certain conditions) without having to pay taxes.
Gifted Down Payment
If you are a first-time home buyer with no money down, you can use the gifted down payment option to raise the money for your down payment. The gifted down payment is basically a gift from your friend, family member, or a company, who is willing to pay the down payment on your home loan as a gift.
To use the gifted down payment as the down payment for you home loan, you need to the concerned person or authority to sign a Gift Letter that specifies that they are gifting you the money so that you can pay the down payment of your home loan and that amount doesn’t have to be repaid.
After getting that gift letter signed from the concerned person or authority, you need to provide your lender the snapshot of the gifted funds being transferred into your bank account – preferably within two weeks of your closing date.
It is worth mentioning that you still need to have enough money for your closing costs from your own savings, which generally range from 1% to 1.5% of your total cost of your home.
Borrow the Down Payment
If none of your friends, family or a company is willing to gift you the down payment for you home loan, you can approach those lenders in Canada, who allow you to borrow your down payment for your home loan. To borrow the downpayment from other sources provided you have an excellent credit rating and income.
The sources which you can use to borrow your down payment includes a line of credit, personal loan, credit card, friends, family members or a company. While you can raise a major part of your down payment for your home loan this way, you are highly recommended to save this option for the last. Also, before going for this option, you must be aware of the fact that borrowing the entire amount of your down payment can put you into serious financial trouble in future, if you can’t manage to pay the borrowed down payment or your home loan monthly payment on time, whatever the reason.
So please speak to a professional financial advisor before considering this option to finance the down payment on your home loan.
Grants Under Canada Affordable Housing Program
Under the Canada affordable housing program, some provinces and municipalities of the country are offering down payment assistance grants, which is a forgivable interest-free lump sum amount to used or the sole purpose of providing down payment to purchase a home. It is the municipality who decide to run this program if it is built into their budget and it has allocated funds for this program. It is worth mentioning that this program ceases automatically, once the total budgeted grant is used.
In order to get the grand under the Canada Affordable Housing Program, you must have a low or moderate income and meet all the eligibility criteria. While the process can be tiresome, it is worth trying. Before you decide to apply for this grant to buy a home with no money down in Canda, make sure to inquire about it locally if there are any grants provided by your province or municipality.
The guidelines for providing grants under the Canada Affordable Housing Program are set out by the government and municipality generally include provisions as the following – although not exhaustive and subject to change:
- The home that you are planning to buy in Canada with no money down must meet specific guidelines including limits on the maximum purchase price and dwelling style. For example, the home must be at or below the average market-selling price for the area and must not exceed what is affordable to households at the 50 % of their income.
- The home must not be an income generating property so duplexes, triplexes are excluded etc.
- The home must be of modest means. This is to ensure the program is not used to purchase larger homes that don’t meet the mandate of the program.
- If you sell the home within a certain amount of years of purchase (usually 10 or even 20 years), you will be required to repay the original amount PLUS a percentage of the realized capital gains (so property price increase).
- You must be currently renting.
- You must have low household income at or below the 50%
- The down payment grant provided by your government or municipality must not exceed 5% of the purchase price of your home and has a specific dollar amount maximum depending on the municipalities budget. For example, 5% of the purchase price to a maximum of $15,000.
As the availability and guidelines of the Canada Affordable Housing Program keep on changing every now or then, you are strongly advised to do a Google Search using the references below to find make sure the program is available in your locality and you meet its current eligibility criteria.
- Down Payment Assistance Grants in (insert your town name)
- Municipal Grants in (insert your town name)
The Best Advice from the Experts
If you are planning to buy a home in Canada without having the money to pay the down payment of your home loan, drop the idea immediately and start saving for it every day by reducing your daily unnecessary expenses.
Of course, it’s will take a few years but is worth doing. Just think of saving one or two dollars from today and multiply it by 12 months of a year. Now imagine that amount multiplied again by every year you save it.
The key to saving for the down payment on your home loan is thinking about the long term. If you save just 2 dollars every day, you will collect 3650 dollars over five years.
Now, what if you increase the amount that you save daily and also the number of years you will continue to save. That’s the best way to save for the down payment on your dream home.
More Resources for Canadian home buyers only: